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A Teesside council could go bust in a year unless spending is slashed or central Government plugs the gap, a meeting has heard.

Redcar and Cleveland Council's reserves will run completely dry within one or two years unless the local authority makes major changes to reduce spending or central Government steps in with millions in extra funding.

That is the shocking conclusion, presented in this year's Audit Completion Report for the council.

In a stark warning, the report says: "On the Council’s current spending trajectory and without identifying and delivering savings, the council is in danger of exhausting its revenue reserves in one to two years, and would be unable to finance its projected expenditure in 2020/21."

The problem explained

On Tuesday, Gavin Barker representing independent audit group, Mazars, delivered the stark message to the council's Governance Committee as he presented his findings.

Praising the council for managing to deliver its 18/19 budget with a £2,000 underspend, Mr Barker said it was "quite a good performance".

But he went on to say that the council's current financial planning revealed a major problem.

"In the 2019/20 budget, the budget was balanced - but only after using £8.9m of its revenue reserves," he said.

Mr Barker said things were only projected to get worse for the following financial year - 2020/21 - in which a budget gap of £11.6m had been identified.

He said that once the council had used the £8.9m of reserves needed to balance the books in 2019/20, the total remaining revenue reserves available to the council would be just £16.1m.

Of that amount he added that £5.1m had already been put aside by the council as the "General Fund Balance" required to deal with unforeseen circumstances.

"Our concern was that the balance of other earmarked reserves was less than that initial budget gap for 2020/21," he said.

"The council doesn't have sufficient reserves to meet the budget gap."

Bust in 'one or two years'

Mr Barker went on to present a stark outlook for the council's future explaining that the he had "qualified" the audit as a result of the authority's failure to balance the books in the medium term.

"In terms of usable reserves, the current trajectory - with the council's current level of spending - is for reserves to go down further to the point where they will run out in the next one to two years," he said.

The Audit report shows that, having used all remaining reserves, the projected balance for the financial year ending March 31 2021, would see the council unable to finance £1.6m of spending.

(Image: PA)

With no reserves to draw on the following year, the council's overspend would be £10.8m - the year after that, £11.8m.

"That is a significant concern," said Mr Barker.

"We're just assuming all the time that you can keep drawing on those reserves but those reserves are actually set aside for specific things that you want to do.

"So the 19/20 budget was financed for the year, but it wasn't balanced in the medium term.

"That's the basis for our qualification."

He added that he had given an unqualified opinion on the council's financial record keeping.

Uncertainty from central Government

Mr Barker said he agreed with the council's director of resources, John Sampson, that uncertainty surrounding central Government funding made planning finances in the medium term almost impossible.

"We appreciate that it's really difficult for the council to take a medium term view when central government's funding position is so unclear," he said.

"John mentioned the Comprehensive Spending Review, which I think of as the size of the pot - we don't know what that's going to be. An increase in that pot would be very welcome.

"The Fair Funding Review is the way it is distributed between different organisations and the approach to business rates is another significant area.

"We still don't know what's going to happen with all of these things so it's very difficult for the council to manage in the medium term.

"It's quite likely that we'll get a one-year settlement which again doesn't give you that medium term picture that you need."

He added: "We recognise the budget report highlighted that the use of reserves in the 2019/20 budget had to be a very temporary arrangement and it was imperative to identify a permanent solution.

"An ongoing use of reserves in this way cannot be sustained - we agree strongly with that view.

"We recognise that officers have been looking at assumptions, refining assumptions, looking at potential saving plans that can be put in place but we are also mindful that this is a work in progress.

"At the moment there is still uncertainty."

The council needs to do something - now

Mr Barker said: "We recognise the gap has been narrowed and it is being worked on but it is still really very finely balanced and difficult financial position that the council faces.

"It is really a key decision point for the council. You clearly need to do something - now - to address this."

He added that he expected that officers would be working to address the problem and that the decisions would be taken by the Cabinet and the Council.

An early warning

Cllr Glyn Nightingale, Liberal Democrat councillor for Ormesby, asked if the council's financial position was unique.

Mr Barker said: "Not every organisation is in the same position as this council. That would be my comment.

"Auditors will always want to give an early warning when a financial position is getting more and more difficult - for me you've triggered that point now.

"Which is why we're issuing the qualification on the value for money conclusion - it's early warning.

"We're not into a 'going concern' issue yet but the council does need to take that action to avoid that being the case in the future.

"Put simply, not every council is there. Not every public sector body that we work with is there.

"I have to say, my experience is that this council is an outlier in this respect.

"There are others who are in this position but the council is among a group of outliers."

Later in the meeting, Cllr Nightingale asked Mr Barker if he had given similar warnings to any other councils.

"I haven't personally qualified any other value for money conclusions," said Mr Barker.

"The firm has qualified some, I don't think it has qualified any others in this area, but in other parts of the country it has."

Close to the cliff edge

Mr Barker said that while Redcar was closer to the "cliff edge" than other authorities, the number of finding themselves in a similar situation was "expected to increase because we just keep continuing to move the cliff edge".

"It can be just where you are in relation to that cliff edge. It can be a historic thing, where you started in terms of the reserve levels you have," he added.

"Some organisations still have quite a lot of reserves to draw upon which means they can manage their position over a longer period.

"Others are just much closer to that cliff edge."

Invoking the spectre of Northamptonshire County Council, he added: "At least one has already gone over that cliff edge - and we've all seen what happens when that happens."

We've had it unless austerity ends

Having heard Mr Barker's report, Cllr Shelagh Holyoake, Labour councillor for Guisborough, said: "Basically we've had it until austerity is well and truly over and public funding is getting the funds that they deserve.

"We all know that children's services and adult services are becoming more and more expensive.

"We've got a statutory duty that every member here wants to fulfil, to ensure the people who live in this borough are getting the best care we can actually provide for them.

"We've got to find the money - simple as that."

She added: "I don't think it was anything we didn't expect, but it still doesn't make easy listening."