The threat of bankruptcy still looms large over Leicester, despite the city council spending less than expected last year. Savings in 2023/24 mean Leicester City Council will no longer have to dip into its emergency pot of money this year, as was predicted in February when the budget for this financial year, 2024/25, was set.
However, councillors were told on Wednesday, 31 July that the authority’s future financial picture was still far from rosy. Director of finance at the council, Amy Oliver, told members of the Overview Select Committee that she did not believe the savings “fairly reflect the significant financial pressures the council is facing.”
The council currently has £91 million in its reserves — a pot of money intended to balance the difference between the authority’s income and outgoings — up from the £53.9 million it was expected to have left at the end of last financial year. Of that £91 million, about two thirds — £61 million — is expected to be used during the current financial year, Oliver said.
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That means there will not be enough money left in the council’s reserves to meet a forecast £90 million budget deficit next financial year, 2025/26, councillors were told. At that point, unless more savings or income can be found, the council will have to file a Section 114 notice — essentially declaring itself bankrupt.
This would likely lead to sweeping cuts like those proposed in Nottingham when its council went bankrupt last year. The cuts in Nottingham included pulling funding from bus services, the closure of care homes, removing funding from community centres, increasing car parking charges, cutting street sweeping to just four times a year, and culling around 500 council staff roles.
City mayor Sir Peter Soulsby said last night: “Next year, we run out of money, and when we run out of money, we’ll find ourselves in the same situation as Nottingham, we’ll find ourselves in the same situation as Birmingham. If we do, that is disastrous for the people of this city and particularly the people of this city who so desperately need our services.
“We’ll do our very best to avoid going off that cliff edge, but a cliff edge there is, and we desperately need to do all we can and take some pretty tough decisions to avoid the whole of the services people rely on from just collapsing.”
“If we go on spending as we are spending, providing the services we are providing, we go off that cliff edge,” he added. “We get the Section 114 notice, and we get the government or its commissioners telling us to make the cuts and where to make them.”
Key areas of pressure for the authority are in education, particularly around looked-after children and SEND services, and in homelessness services, Oliver said. Pay rises for the council’s employees had also added to the difficulties, she said.
The pressures were largely offset by a £6.5 million saving in adult social care, which was down to prevention work to decrease the number of people requiring “formal” care from the service, she added.
However, she said underspend had happened after an extra £32.9 million had been added to the service’s budget during the year, meaning that overall, more money had been spent than in previous years.
Unfilled staff vacancies, higher interest rates on council savings, falling energy costs, and additional grants received by the council also contributed to the savings. The net underspend, factoring in both money saved in some departments and money overspent in others, totalled £1.7 million last year.
The cash in the general reserves was also buoyed by some overspending being met by individual departments’ reserves, rather than by the wider council reserves.
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