New unit could inherit ‘significant’ financial problems, says report
Cumberland Council could face a rocky start when it launches next April – thanks to a host of ‘significant’ financial issues being addressed by one of its three successor authorities.
Copeland BC, which will merge with Allerdale BC and Carlisle City Council to form Cumberland Council on April 1, 2023, is in a “financially difficult position”, according to an audit report by Grant Thornton, seen by LGC.
The report highlights a “substantial” number of governance issues which, if left unaddressed, could have “significant consequences for the financial viability of Cumberland’s new unitary unit”.
The council’s financial situation has been precarious for several years after dealing with a major cyberattack which cost £2m to deal with and a commercial tariffs appeal from Sellafield nuclear power station which cost the council £9m additional.
Copeland will disappear next year as part of a local government reorganization that will see Cumbria’s county and district councils abolished and replaced by two new unitary councils.
In January, the council applied for its second capitalization directive of £1.5m from the Department for Levels, Housing and Communities to cover the 2022-23 financial year. He had previously been given a £1.5m capitalization directive by DLUHC to cover the 2021-22 financial year.
The guidelines came on the heels of a report by the Chartered Institute for Public Finance and Accountancy which said the board should issue an opinion under Section 114, saying it could not balance its books if it did not receive exceptional financial support from the government.
The audit report says the board believes that if the second funding directive does not materialize, it will be able to fill the funding gap through the use of unrestricted reserves.
Grant Thornton said if the board does not receive the funding directive, it will have to use the majority of its remaining unrestricted reserves. This will leave a very small reserve position of £0.063m plus a general fund reserve of £2.2m.
The report also says the council has now committed £1.6million to the new Cumberland unitary authority.
Concerns have previously been raised by DLUHC regarding the affordability of the council’s capital program.
Grant Thornton’s said: ‘We recognize the council has not yet committed to significant borrowing, but has established a three year capital program in 2022-23, covering the local government reorganization era .
“Given the precarious revenue situation the council currently finds itself in, it must be extremely careful not to overcommit to its capital ambitions.”
Under section 24 of the local Audit and Accountability Act, Grant Thornton has recommended that the council ensure that its general fund reserves remain at the required level of £2 million.
Section 24 requires Copeland to hold a public meeting at which audit recommendations are presented and accepted by the full board within one month of receipt by the board.
However, LGC has learned that the April meeting of the full council where the report would be presented has been canceled due to purdah rules.
Copeland has been approached for comment.