Auditor warns Redcar and Cleveland Council about long-term financial sustainability amid reserve depletion.
The report mentioned using reserves to cover deficits, a common practice for councils facing financial difficulties. The law requires councils to balance their budgets.
The council had deficits of £3.299m in 2023/24 and £4.6m in 2022/23. These deficits mainly came from children and families services, which overspent £10m in 2022/23 and £9m in 2023/24, particularly related to children in care.
Because the council used reserves to cover these deficits, reserves went from £42m to £23m in two years. While some reserve use was planned, not all remaining reserves can cover future overspending as some are for specific, future commitments.
A council member said reserves were quite low and they need to budget carefully. The council plans £8.8m in savings next year and will also increase council tax by 4.99%.
Reserves might drop to £16m as they plan to use £7.1m this year. The auditor said this level of reserve spending is not sustainable and, without major changes, the council could use all reserves.
Finances could improve in future years, with the council potentially adding £34m to £40m to reserves by 2029. However, this relies on certain assumptions about planned savings in 2025/26, a difficult goal, and increased income from Teesside freeport tax sites like Teesworks.
The auditor noted the council’s cautious approach when estimating income, thinking they can raise £29m in three years, while another estimate is £32.7m.
The council is working to reduce overspending in children and families, which they know is key. The council expects finances to improve by 2026/27, adding to the general fund. They recognize the next two years are tough.
Many councils face challenges with children and families, and this issue is not unique to Redcar council. The council is working hard on this challenge, adding resources to their plan.
Using reserves for deficits is risky and has lowered reserve levels, which is a concern given the council’s many challenges. This has lowered reserve levels.
The council’s plan, called ‘survive, strive and thrive’, aims to rebuild strong finances, including healthy reserve levels, through better, long-term plans. These plans should focus on better outcomes, and a report indicated that the next two years are critical.