Published: 07:07, 17 November 2016
Thanet District Council has been warned the amount of money it holds in reserves to deal with unexpected emergencies is millions of pounds short of what it needs to be and could put the authority at significant risk.
The warning comes in an internal report that lays out the dangers the council is facing because of the low level of so-called “rainy day” money it holds.
The council’s cabinet is told by its own finance chief this week its reserves of £6.6 million are less than one third of what a council of its kind should have.
A report says: “A 2015 review by the Chartered Institute of Public Finance and Accountancy showed the level of reserves held across the country, and it suggested that a local authority the size of Thanet would normally hold in excess of £20 million of reserves.”
It adds: “The council has suffered a number of unexpected, unbudgeted, events in recent years, including Transeuropa, live animal exports, HAVS [white finger syndrome] and a sizeable overspend on Dreamland heritage park.
“This suggests Thanet carries certain inherent risks – it owns and runs a port, it issued a compulsory purchase order on a heritage theme park and it retains an in-house direct labour workforce.
“No other district has all these characteristics. This implies Thanet carries far more risk than average and so, even the £20 million average reserves of a typical district may be on the low side.”
The council’s precarious financial plight has already been highlighted by its auditors, who told the council it needed to boost its reserves by charging more for services and making more cuts.
And the council has acknowledged that it could “face a substantial liability which cannot be funded without unplanned actions that could damage services. Also, lack of resources could undermine the council’s ability to exploit opportunities and/or develop services”.
The former Green councillor Ian Driver said the “catastrophic cash crisis could render the council technically insolvent”.
He said: “This report is very worrying. The council is an extremely vulnerable financial position and could easily face technical insolvency.”
The council has recently embarked on a sell-off of various assets as part of a drive to save £200,000 over two years and is facing having to make savings of £1.7 million next year to balance the books.
Thanet District Council’s director of corporate resources Tim Willis said: “This council has been subject to a reduction of nearly 40% in revenue support grant from central government over the last four years.
“Additionally, there have been substantial costs and liabilities associated with historic decisions.
“In this context, a benchmarking exercise was undertaken to understand Thanet’s relative position regarding its reserves.
“While our projected level for 2017-18 is £6.6m, we are in the process of developing an updated four-year medium term financial strategy to continue the process of replenishing our reserves by generating extra income and becoming more efficient.
“This council has a solid track record of sound financial management, its accounts received a clean audit for 2015-16 from its external auditors and delivered the £1.2m savings required to balance the 2016-17 budget.
“ The budget strategy for 2017-18 also sets the framework to deliver a further projected £1.7m savings.”