Council could sell assets in attempt to balance 24/25 budget

By Natalia Forero, Local Democracy Reporter

civic centre gp 460 stylisedUpdated Car parks and office buildings could be sold off as Southampton City Council, along with many councils in England of different stripes, attempts to stave off insolvency.


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The city council has confirmed that it will be unable to set a balanced budget for 2024/25 without the government giving financial support.

The final budget will be presented on March 11 at the full council meeting, to which proposals include council tax rising by 4.99 per cent, the maximum allowed without a referendum. That would generate an additional £5.7 million, of which £2.3m would be ring-fenced to support adults in the social care system, an area which currently faces a deficit of £5 million.

Despite Southampton City Council being able to reduce its current forecasted deficit from more than £13.3 million in July to £7.6 million now, which will be covered by reserve, the future of the upcoming budget is uncertain.

Its draft budget document for the next financial year, which outlines how it will spend £239.2million, said there would be significant deficits for school transport (£4m), looked after children (£3,5m), and adult care packages (£5m).

The budget with the additional costs is forecast to be £278.5 million, leaving a budget shortfall of £39.3 million.

As required by law, councils are required to deliver a balanced budget, failure to do so would see the council issue a section 114 notice and effectively declare bankruptcy. Because of the shortfall, unless the council receives the Exceptional Financial Support (EFS) from the government, it won’t be able to set a balanced budget.

To receive this temporary support, the council has already submitted a formal application to the government, with EFS currently offered to 16 authorities nationwide, such as Kensington and Chelsea, Bournemouth, Christchurch and Poole, Croydon and Slough.

By now, the council expected an answer from the Department for Levelling Up, Housing and Communities (DLUHC). However, it is still yet to be received.

According to the government, the Exceptional Financial Support framework is available to provide support where a council has a “specific and evidenced” concern about its ability to set or maintain a balanced budget, including where there has been a local financial failure.

The EFS options are either an increased council tax referendum limit or a capitalisation direction.

The leader of the council, Cllr Lorna Fielker, said in an extraordinary meeting that the first option – to increase the council tax referendum limit from 4.99 per cent – would not benefit Southampton residents.

The second option, capitalisation direction, will not see extra funding from the government; instead, it will allow the council to treat revenue costs as capital costs.

This would mean the sale of assets such as community centres, hubs, underused car parks, buildings owned outside the city, museums or art galleries; only those that “make sense to the citizens of Southampton”, said Cllr Fielker.

Usually, the council could not sell-off buildings to fund day-to-day costs but the direction from the government would allow it to do so.

The council will develop an asset management strategy to analyse the most rentable assets that could be sold.

If the council doesn’t receive a positive response from the DLUHC, the council will have no choice but to issue a section 114, effectively bankruptcy.

In the meantime, Southampton City Council will scrutinise the draft proposal next week (Monday 5) and present it to the full council on March 11.

Update 29/2/24 - The council issued the following update, below in their own words:

Government agrees Exceptional Financial Support for Southampton City Council

On Thursday 29 February 2024, the Department for Levelling Up, Housing and Communities announced that it is minded to agree up to £121.6 million of Exceptional Financial Support for Southampton City Council.

This support comes in the form of a Capitalisation Directive that will enable the council to use capital resources to cover revenue costs for the next 12 months only.

A breakdown of the £121.6 million is as follows:

  • £39.3 million to offset the 2024/25 budget deficit and to enable the council to set a balanced budget on 6 March 2024.
  • Up to £10.6 million to cover transformation and improvement costs.
  • Up to £12.2 million for potential restructuring costs resulting from this transformation work
  • Up to £7.5 million for potential unforeseen events that cannot be funded from the Council’s limited reserves
  • Up to £52 million to cover a potential equal pay claim liability. This liability is an unintended consequence of different working practices that have been in place across the organisation for a number of years, the amount of which will be determined by a full equal pay audit

The council will be subject to an external, independent review, and will need to provide the Government with a detailed transformation and improvement plan within the next six months.

Councillor Lorna Fielker, Leader of Southampton City Council said:

“I welcome this announcement and would like to thank officers for the excellent work they have done with the Government over the last few months. This support gives us time to put in place the transformation plans that will enable us to bring our budget back into line and put us on a stable footing moving forwards.”

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