Auditors working with local governments are reporting unprecedented financial strain, marking every council’s finances as “red” amid rising debts in special educational needs and disabilities (SEND) and social care. This dire assessment was revealed during a North Somerset Council audit committee meeting by external auditors Grant Thornton, who flagged serious concerns about the council’s financial sustainability.
North Somerset Council has been rated “red” due to significant weaknesses in its ability to implement savings and reduce overspending on SEND services. However, this challenge is a consistent theme across the country. Grant Thornton representatives told councillors, “I have not seen a council this year that does not have a ‘red’ financial sustainability rating.”
The root cause lies in escalating costs and demand for SEND services outstripping the government’s designated schools grant (DSG), leading to growing DSG deficits. Presently, a statutory override excludes these DSG deficits from being counted as part of councils’ budget responsibilities, but this safeguard is due to expire after the 2027/28 financial year, intensifying concerns about councils’ ability to maintain balanced budgets.
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Amy Webb, North Somerset’s finance officer, highlighted the broader context, stating, “We have systemic issues in local government that are then flagged as a red issue for us organisationally.” The government has announced plans to take over SEND funding from 2028/29, but it remains uncertain whether councils’ accumulated DSG debts will be forgiven once the override ends.
North Somerset Council currently faces a DSG deficit of £12.7 million for 2024/25, piling onto a cumulative deficit of £26 million. The audit report urges the council to reduce this deficit and maintain ongoing dialogue with the Department for Education.
While the DSG deficit is excluded from council balance sheets, social care costs are mounting and putting additional pressure on council budgets. The auditors warn that North Somerset’s reliance on its reserves to cover deficits is rapidly depleting its financial flexibility.
In February, council leader Mike Bell warned that balancing the 2025/26 budget depends on drawing £9.1 million from reserves, a strategy auditors deem unsustainable. These reserves, often described as a “rainy day fund,” have shrunk from £125.8 million in 2023/24 to £116.3 million in 2024/25, with forecasts projecting a steep drop to around £40 million by 2027/28.
Audit committee member Peter Bray, an independent advisor, commented that despite excellent management, “Local government are being put under pressures that are not of their making.”
Mike Bell described the financial outlook as the “most challenging situation in our history,” with social care now consuming over 60% of the council’s budget. The council faces a projected three-year budget gap in excess of £48 million and anticipates further losses due to government funding formula changes.
Bell emphasized the council’s proactive measures, including a comprehensive transformation program, rigorous service reviews, ongoing discussions with central government, and strategic use of reserves to maintain essential services and planned capital projects.
At present, North Somerset Council is seeking “exceptional financial support” from the government, potentially allowing it to surpass council tax increase limits or to borrow funds to stabilize its financial position while pursuing long-term savings.