LGA review rings alarm bells for HBC finances

Hastings Borough Council is close to going bankrupt and urgently needs to take drastic action to avoid this fate, according to a draft review of its finances by the Local Government Association. Nick Terdre reports.

Invited by HBC in March to conduct a peer review of its finances, the Local Government Association has produced a draft report to which the council is now responding. Among excerpts which have been seen by HOT it states that, “Unless the revenue budget position is addressed as a matter of urgency, with savings promptly realised, then the CFO/S151 Officer will be left with little choice but to issue a s114 notice to the Council at some point during 2023/24 financial year.”

A Section 114 notice is issued when the CFO, (chief financial officer), who is also the Section 151 officer, considers the council may be unable to balance its budget, as required by law. It restricts all new spending with the exception of protecting vulnerable people, statutory services and pre-existing commitments.

Central government also has the power to send in external commissioners to take control of a council’s finances, as happened to Thurrock last September.

Hastings is not the only authority in financial trouble – all councils have been subject to the continuing squeeze on central government funding since 2010, recently exacerbated by the Covid pandemic.

The draft report warns that “the  auditors for Hastings have flagged substantial conerns about the financial sustainability of the organisation going forward,”

A spokesperson for HBC, whose leader Cllr Paul Barnett was made the finance lead last week, told HOT the LGA review process was still under way. “The LGA Peer Finance Review has not yet been published. Currently our officers are discussing a draft  with the LGA and suggesting corrections to factual errors. As soon as this has been done, the report will be published alongside a response from HBC.”

Housing crisis

“These reviews are designed to challenge and support local authorities to improve their financial management. So we welcomed the LGA team here, and look forward to the final report. We know that this review needs to focus on our local housing crisis, as the financial impact of more than 1,000 residents needing temporary accommodation is the main risk to the council being able to balance its budget.”

According to the draft report, “In 2021/22 the Council incurred a significant overspend on homelessness services of £174k, which has grown to a forecast overspend of £2.029m in 2022/23…”

While savings have been identified through to 2025/26, the detail behind the headline figures is not clear, it says. Though the council has agreed to reduce the homelessness budget by £1m per annum from this year, “…the action plan does not exist for years 2 and 3, which coupled by [sic] the current rise in demand suggests these savings are unlikely to be achieved without swift and decisive action.”

The HBC spokesperson commented: “Tough messages on this are important, as the scale of the housing crisis means tough decisions for the whole council. And the need for tough decisions was clearly flagged up in the budget set by Full Council in February. The budget agreed cuts, and in addition, since then, a wide range of other changes have been implemented.

“So we will welcome the continued experience provided by the LGA in assessing the degree to which these changes are tough enough, and if we have the balance right in continuing to provide vital services for Hastings at the same time as further tightening our financial commitments.”

2022/23 better than expected

The report to the early July Cabinet meeting shows that the 2022/23 year turned out better than budgeted, the spokesperson said. This showed that interest payments were down and receipts up compared with the budget, resulting in costs £913,000 lower than expected. There was also no new borrowing during the year.

The Tory group leader Cllr Andy Patmore told HOT that, “Until we see the final report it is not possible to comment on its contents at this time.”

Green leader Cllr Julia Hilton lamented what she saw as Labour’s lack of urgency in tackling the situation and its refusal to involve other councillors in seeking solutions. “It’s no secret that things are looking pretty bleak because of the huge rise in homelessness and the resulting spend on temporary accommodation,” she told HOT.

“However this review emphasised the urgency of acting ‘at pace’ to have any chance of stopping the council going bankrupt. Here we are three months further on with no sign of the final report or any sort of action plan despite knowing the urgency for savings a year ago. When will the Labour group share their plans so all councillors can input into the urgent need to reform the council’s finances?”

Hotel plan

“Labour has been running this council for over 15 years and constantly seems to be unwilling to take the necessary steps to put our finances in order. In fact it has added to the financial pressure with its highly risky plan to build a hotel for Premier Inn on Cornwallis St car park. The car park  has now been closed for over a year with a loss of tens of thousands of pounds of parking income.”

On the plan for a new hotel, the LGA report says: “The return on investment is unclear and may actually constitute a cost/loss of income in the short to medium-term…”

Others have suggested that this issue is heading towards an unmitigated financial disaster.

There is little encouragement for HBC in the excerpts seen by HOT, though the review acknowledges that “The Council’s financial controls are showing signs of improvement under the new S151 officer but are not yet fully developed.”

Among other councils whose finances have come a cropper, Croydon declared itself effectively bankrupt last November, when Kent and Hampshire county councils warned they were heading the same way. Slough became effectively insolvent in 2021, when the National Audit Office warned that at least 25 local authorities were on the brink of bankruptcy.

 

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