Could Scilly’s Council Go Bankrupt?
At last week’s Full Council meeting, Scilly’s councillors found out that the authority’s General Reserve Fund, which it uses to cover unexpected expenditure such as significant overspends, was much lower than they had thought.
Back in March, they were told this fund stood at £1.08m. But following investigations by the external auditors from accountancy firm Grant Thornton, it turns out the council might have overspent by £546,000, taking the reserves to just over £0.5m.
I say ‘might’ because the actual financial position of the Council, as it stood at the end of the last financial year in March 2016, is still unknown.
Even worse, councillors don’t have a final budget plan for this year, even though they’re three-quarters of the way into it. That’s because the budget relies on knowing what your ‘outturn’ was from the previous year.
Last year, the Chief Executive, Theo Leijser, said the Authority needed to make savings of £678,000 in 2016/17 although there will still be a predicted deficit of £276,000 by the year-end.
If the overspending has continued, there’s a serious chance that the Council might have already consumed a large part of its remaining reserves, coming perilously close to having nothing left in the account.
At the Full Council meeting, Cllr Christine Savill, a former Isles of Scilly Council Chairman, summed up the situation: “We haven’t made the savings we’d hoped to make. We’ll be significantly overspent and that will have to come from our reserves. This authority is in a really serious financial position at this time.”
The Council’s new finance and Section 151 officer, Andy Brown, agreed, describing the position as “very precarious” and “a big concern for me.”
So could the Council of the Isles of Scilly go bankrupt?
The answer is yes and no. A local authority can become technically bankrupt, but not in the same way that a company or individual would.
In reality, a combination of government intervention – essentially ‘special measures’ for a council – as well as raising more money through increased central grants, council tax rises, budget cuts, borrowing or selling assets would mean the Council would stay afloat.
But the consequences could be serious. In Scilly’s case, the government would probably encourage more sharing of resources with another local authority – most probably our larger neighbour, Cornwall.
We’re already seeing that happen. This year, a raft of Council services have been moved under mainland management, including legal and financial services.
Two of the most important scrutiny roles in Scilly’s Council – the Monitoring Officer and the Section 151 Officer – are now filled by Cornwall Council staff.
If the Council’s financial position gets any worse, that outsourcing could accelerate. Scilly’s elected members would still be in control, albeit advised by officers from a different council.
But there would be a loss of well-paid council officer jobs on the islands, with the obvious knock-on effect to Scilly’s economy.
It also doesn’t free up that much spare cash. Outsourcing can cost as much as, or even more than, employing an officer ‘in house,’ although it has the advantage of enabling access a larger and possibly more experienced team.
When councillors in Cornwall debated taking on some of Scilly’s services in September, they said the arrangement “must be mutually beneficial to both the Council and the IoS” and ideally provide a net modest external income stream to Cornwall, who are also facing budget pressures.
The next few months will be critical to the future of the Council of the Isles of Scilly.
Councillors need to have an accurate view of their finances to be able to make tough decisions on spending.
On 26th January, the auditor will bring a revised Statement of Accounts back to the Full Council and Mr Brown has said this will be the “final deadline” for the accounts to be signed off.
Councillors will then be able to agree on a budget to keep the authority afloat during 2017/18. A second meeting of Full Council has been pencilled in for early February to allow this to happen.
If a balanced budget isn’t agreed, Mr Brown will have the option to issue a so-called section 114 notice, which effectively puts a legal brake on all spending until a balanced budget is agreed.
It means councillors won’t be able to make any decisions involving funding until the situation is resolved, potentially crippling the organisation.
It’s not a hollow threat. Mr Brown warned councillors at last week’s meeting that he doesn’t want to issue a section 114 notice, but would be “legally bound to” if the situation warranted it.