A Tory-controlled local authority has called on ministers to fix a “broken” system of council funding after it emerged its deteriorating finances mean it is at serious risk of going bust.

Somerset county council has been told that large overspends on children’s social services, coupled with reduced government funding and the erosion of its reserves, have left its finances “in a very challenging position”.

A formal peer review says any failure to meet its ambitious financial savings targets for the current year would leave the council at risk of being unable to set a balanced budget within months – in effect leaving it at risk of insolvency.

The county, which has already announced unpopular plans to close two-thirds of its Sure Start children’s centres, more than half of its libraries and make big reductions to its learning disability services, must now find further cuts.

There has been heightened concern over the sustainability of local authority finances since Northamptonshire county council declared effective bankruptcy in February. It was subsequently taken over by government commissioners.



A spokesperson for Somerset county council said: “There are clearly pressures on our budgets, as there is on local authority budgets up and down the country as government funding falls and demand grows.

“The recent peer review report found many positives and areas of success. It also concluded that we understand the financial challenges we face and that we can meet them.



“We believe the system by which local government is funded is broken and call on the government to address this as a priority as part of its fair funding review [of local government finance].”



Somerset says it is confident that it will not follow Northamptonshire into insolvency. Despite serious challenges – including a target of £17m in cuts for children’s social care this year – it says it is committed to meeting savings targets.



But the review makes it clear that the county has struggled to deliver planned savings for two years, and has been reliant on reserves to patch up its budgets. “For the last two years only 65% of agreed savings have been delivered and whilst there may be specific reasons for this, this level of delivery is simply unsustainable in the future.”



Somerset, which has an annual budget of around £316m, has made around £130m of savings since 2010. It believes the forthcoming green paper into social care funding and the fair funding review hold the key to its survival.

The National Audit Office warned this year that several councils were using up “rainy day” reserves to prop up services. It estimated up to 15 councils are at risk of going bust when their reserves are exhausted.

Jane Lock, the leader of Somerset’s opposition Liberal Democrat group, blamed the council’s predicament on its decision to freeze council tax for six years after 2010, despite swingeing national cuts in funding, and at a time when austerity measures were increasing demand on services.



She said: “The reason Somerset has got to here is quite simply the political ideology that they would refuse to put up council tax. That’s left a £26m hole in the budget.”

Simon Edwards, the director of the County Councils Network, said: “County authorities face a toxic cocktail of having rising demand for services, being the lowest funded upper-tier councils, and the impact of having the sharpest reductions in government funding by the end of the decade.”



He added: “With demand continuing to rise amid funding reductions, the reality is that councils of all sizes and colours will face similar situations in the future, unless a sustainable solution is found by government.”

