North Somerset Council’s usable reserves are projected to fall sharply from £125.8 million in 2023/24 to just over £40 million by 2027/28, representing a staggering two-thirds decline, according to external auditors Grant Thornton.
Council leader Mike Bell acknowledged the severity of the situation, saying, “We are facing the most challenging financial situation in our history,” though he maintains that the council remains “well run.”
Grant Thornton’s recent external audit report, presented to the council’s audit committee on November 27, highlights growing dependence on reserves to manage budget shortfalls. The council plans to draw £12.8 million from earmarked reserves in 2024/25, including nearly £6 million to address pressures in children’s services. While the usable reserve base has already decreased to £116.3 million for 2024/25, it is forecast to dwindle further, putting the council’s financial flexibility under significant strain.
READ MORE: Delivering New Somerset Railway Station ‘On the Horizon’ Despite Government Cuts
READ MORE: ‘Lifeline’ Buses at Risk as Funding Deadline Looms in Bath and North East Somerset
The report warns the planned use of £9.1 million from reserves in the 2025/26 budget, approved earlier this year, is unsustainable. Although some councillors criticized this approach at the time, Mr. Bell defended the decision, explaining, “We have literally got to a situation where this is the only way to achieve a balanced budget.”
Reserves, often referred to as a council’s “rainy day fund,” act as a safeguard against unexpected financial pressures and cover in-year overspends. In an example of unforeseen expenditure, North Somerset Council withdrew £153,000 from reserves this year to fund the removal of “wiggly lines” from Clevedon seafront.
Grant Thornton cautioned that continued reliance on one-off measures, combined with unpredictable demand in costly services, threatens the council’s financial resilience. This challenge is compounded by uncertainty over the government’s fair funding review, as the lack of confirmed future funding levels hampers long-term budget planning.
The auditors assigned a “red” rating to the council’s plans for closing funding gaps and achieving savings, indicating “significant weaknesses.” They recommended each council department develop credible and sustainable savings plans prioritizing recurring cost reductions.
Speaking on the forecasted reserves decline, Mr. Bell highlighted the growing demand and costs in children’s and adults’ social care, which now consume over 60% of the council’s budget. This includes residential placements for looked-after children, support for young people with special educational needs and disabilities, supported housing for vulnerable adults, and elderly care.
Despite difficult decisions, the council faces a budget deficit exceeding £48 million over the next three years. Additionally, a predicted £17 million shortfall due to changes in government funding formulas threatens to reduce revenue by 20%.
“We are a well-run council with a good track record of managing our finances,” Mr. Bell stated. “No stone is being left unturned as we seek to balance the budget, including implementing a council-wide transformation program, reviewing services, engaging with government on funding reforms, and leveraging reserves to support both revenue stability and essential capital investments.”
North Somerset Council is currently in talks with the government regarding “exceptional financial support.” This may involve seeking approval to increase council tax beyond the usual 5% limit without a referendum or obtaining permission to borrow funds to invest in long-term savings initiatives.