There’s been a lot in the news about our finances. So we thought we’d answer some of the most frequently asked questions.
Why are you making so many cuts?
For most of this year, we have been open and transparent that Coventry City Council – like many other local authorities of all political colours across the country – are facing severe financial challenges. Since 2010, we received £100m less every year and we have prudently managed our budget to ensure we meet our legal duty of setting a balanced budget. However, in recent years, the collective result of these severe cuts in funding and rising demand in services such as social care and homelessness has brought this to a head. Without making further cuts to services, the reality is that we will not be able to set balanced budgets and will run out of reserves to fill the gap. No action would mean that we would be forced to issue a Section 114 notice in the next few years effectively meaning we are bankrupt.
Is Coventry City Council about to go bankrupt?
No. What the Council is trying to do is highlight that the way all local authorities are funded needs to be reformed as it is no longer fit for purpose. Without any changes, more and more councils – and Coventry is one – will increasingly struggle to meet its requirements to set a balanced budget meaning a section 114 notice might have to be issued in the future.
What is a Section 114 notice?
Councils are required by law to have balanced budgets. If a council cannot find a way to finance its planned spending, then a Section 114 Notice must be issued. The issuing of a Section 114 Notice restricts all new spending apart from protecting vulnerable people, statutory services and pre-existing commitments.
A 114 notice would also mean that Commissioners would be brought in to run the Council, making decisions to cut services and reduce jobs without consultation. They would also have the ability to raise Council Tax levels far higher than the current levels that councils are restricted to.
How do you decide what services are cut?
Our priority is to protect essential services, jobs, the most vulnerable and continue to deliver key Council priorities. Anything that does not meet these criteria could either be reduced or stopped all together. Services that we are required by law to deliver – such as social care, housing and homelessness and emptying bins – will continue but the way they are delivered may change.
Doing nothing is not an option because of the financial pressures we face. We need to find ways of reducing non-critical spending, the demand on services and review assets to reduce costs and maximise income. All proposals will be subject to full consultation and final decisions will not be taken until February 2024.
You talk about consultation, but you’ve made the decisions on the proposals already, haven’t you?
No. We genuinely want to hear people’s views as well as any other ideas you many have on how we can save money. However, doing nothing is not an option because rising demand in services along with a sustained reduction in funding means we will not be able to set a balanced budget – as we are required by law – in the very near future without doing something.
Why do you think Coventry City Council deserves more funding?
There is clear evidence that shows that Coventry City Council has been, and continues to be, underfunded. The city receives one of the lowest funding per head of the population in the country (Coventry £821, England average £910) as well as one of the lowest in the West Midlands. Indeed, research by the Institute of Fiscal Studies which looked at funding compared to need, demonstrates a gap of £39m between Coventry’s funding per capita compared to the average Local Authority funding per capita figure.
Added to this, Coventry has seen an overall increase in demand which far exceeds available funding – particularly in areas such as children’s and adult social care. Currently, more than 70% of our entire budget is spent just on social care – a rise from 40% in 2010.
At the same time, Coventry City Council is what the Government defines to be a ‘tariff authority’. As part of this, £20m from business rates we should receive is removed from our budget every year, despite our obvious need.
On top of all this, the Council – like all public sector services – has been hit by inflationary pressures. The cost of fuel, electricity, gas and other essential things we need to deliver the more than 600 services across the Council has risen unprecedentedly over the last 12 months just like it has for all the residents and businesses we serve. We expect funding for local government to increase by 3% nationally. This does not reflect inflationary increases or rising demand meaning effectively it is a cut.
But every council will say they need more money, wouldn’t they?
In Coventry’s case, we have independent evidence that shows we have a compelling case. As well as the examples given above, Coventry featured prominently in an independent report published by the Institute of Fiscal Studies in August 2023. Within it, the report singles out Coventry as an area whose local government services are underfunded by around £50m based on relative need.
You put up Council Tax every year, so any reduction in funding has been offset by those increases, haven’t they?
No. We’ve lost more than £100m in government funding ever year but we are restricted to increase Council Tax by 2.99% (not including a 2% social care precept in 2023 and 2024) but a 1% increase approximately means a £1.5m monetary increase in Coventry’s case. That’s well below the more than £100m lost each year. However, we’d rather our core government funding was increased rather than being forced to put up our Council Tax if given the choice.
You say demand on services is a cause of the financial challenges along with underfunding. Demand will come and go, won’t it?
Unfortunately, over the last 13 years, the evidence does not suggest that demand comes and goes – the trend is that demand has increased over this period. For example, in 2010, 40% of our budget was spent on social care and homelessness but today it is about 75%. That increase has just been about meeting rising demand.
You have millions of pounds in your reserves. Why doesn’t the Council use them to meet the financial shortfall?
We have already used reserves to bridge the shortfall in the past, including spending almost £7m from them last year to manage the overspend. We are currently predicting an overspend of more than £11m this year which will also have to come from reserves. As things stand, we have £33m in reserves that are uncommitted and can be spent on this but a £11m overspend this year means that figure would be down to £22m and without action, we are predicting a large overspend for next year. Using reserves that helps for one year but does not provide a long-term solution. . We do hold other reserves, but these are already committed on ongoing projects or are held on behalf of others – for example, we hold almost £65m reserves that are either owned by schools or is pooled money with the NHS.
Isn’t the financial situation you find yourself in or your own making?
No – any organisation that has received more than £100m less in funding for more than a decade, has to give-up £20m in Business Rates income every year and is independently found to be an area whose local government services are underfunded by around £50m based on relative need is going to eventually struggle. In fact, to continue deliver more than 600 services a year over a sustained period of considerable funding cuts demonstrates the prudent decisions taken by the council over the last 13 years.
But you’ve spent money on things like bicycle lanes, regeneration projects and the work in Spon End. That money would have been better spent on your budget gap wouldn’t it?
Coventry City Council has been very good for many years at successfully applying for external funding for specific projects. However, this money can only be spent on the schemes the funding has been awarded to. Projects such as the Binley and Coundon cycles lanes have been paid for by a number of such grants and not from Council Taxpayers’ money. Similarly, regeneration projects such as Friargate and City Centre South are almost exclusively funded by such grants. This was also the same for the work in Spon End, which also meant the city did not have a congestion charge imposed that some drivers would have had to pay.
It is important that we continue this work as it is not costing Council Taxpayers anything but is helping the city meeting its ambitions over being greener, promoting health and wellbeing and promoting economic prosperity or the city – key priorities of the One Coventry Plan.
You’ve invested in a range of businesses in recent years such as Tom White Waste and Coombe Abbey. Has spending money on this contributed to the problem you face?
Our investments in businesses gave us a collective return of 6.5% return on our investments last year. This income has been critical in funding frontline services and helping us overcome the lack of funding in previous years. Indeed, without it, further cuts to services would already have had to be made in the past.
You loaned the City of Culture Trust £1m that looks like it has been lost since they’ve gone into administration. That was a waste.
Although the administrator is indicating it is unlikely that the loan will be repaid, there can be no debate about the benefits the accolade and the Trust itself has brought to the city. Independent evaluation has proven the year was responsible for more than £180 million of additional investment flowing into the city secured at least in part due to the award of the UK CoC 2021 title. It also provided significant government funding to improve our heritage assets, attracted a £150 million boost in tourism income above pre-Covid levels and almost a half of Coventry residents engaged with more than 700 City of Culture events. It is extremely regrettable and unfortunate if the loan is not repaid but the wider benefits to the city and its residents have been much bigger.
How do you know other councils are struggling with the same financial challenges then?
There are headlines nearly every day on councils that are facing financial challenges and having to make difficult choices. Every single case has a mixture of under-funding, a rise in demand in services and huge inflation pressures at is core. Responses to a recent FOI found that 369 of the 371 councils in England, Scotland and Wales say they were