The county’s billion pound battle
The two unitary authorities forged out of the wreckage of the former bankrupt county council are in dispute about where the debts should land
By Sarah Ward
The West and North unitary councils are in dispute about how the capital finance debts accrued by the former county council should be shared, with the stalemate putting all current accounting audits on ice.
Almost six years on from the collapse of the county council and more than two years after the creation of the new unitary authorities, it has emerged senior bosses have not been able to agree how the debts taken on by the failed council are distributed between the two organisations, with the unitaries now set to enter into legal arbitration to end the impasse.
However the external auditor for the North authority, Mark Stocks from Grant Thornton, issued a plain warning to the council’s audit committee at a meeting last week, saying that the problem needs to be sorted quickly so he can understand the underlying financial situation of the authority.
The final accounts of the county council from 2020-21 have still not been signed off and at the meeting Mr Stocks said he had not even received the accounts of the unitary council for its first year (2021-22) or the second year (2022-23). The authority is now in its third year with not one set of audited accounts.
The meeting heard the monitoring officers for both councils, Catherine Whitehead and Adele Wylie, are looking at how arbitration could be handled, but the auditor said the two year timescales that had been mentioned to him are not ‘tenable’.
He told the council’s head of finance Janice Gotts said:
“You are the ones who will be setting the parameters for the arbitration and that needs to be no longer than four to six months, I would suggest, because we have got to get to a position where we understand the underlying finances and at the moment we don’t.”
There is a national issue currently with hundreds of outstanding audits for councils’ accounts created primarily by a lack of professionals who can and want to do local government audits.
The government is now looking at the possibility of a backstop date meaning that any audit of public body accounts not completed by a certain date (not yet decided) would be disclaimed. Mr Stocks said this was a situation where the auditor would state they did not know what the books and records were showing.
Corby Borough Council’s final set of accounts and the county council’s last set of accounts both for 2020-21 have been caught up in the audit delay, however the North unitary’s current auditor said the lack of sign off did not stop the authority disaggregating the former county council’s debts and said he had had discussions with the chief executive and the finance director about the ‘critical’ need to do so.
He said:
“It is important you finalise the disaggregation of the balance sheet because it will allow both yourself as a council and ourselves as auditors to determine your financial sustainability and your underlying financial strength’.
Both councils are currently predicting going over this year’s budget and are struggling with the huge overspend being incurred in children’s services, which are managed by an independent trust. Most of the overspend relates to the cost of placements for looking after children in care. Northamptonshire, like most areas, has very little local authority run children’s homes, instead paying huge sums to private firms to care for the children.
At the meeting Janice Gotts explained the debt stand-off situation and said the amount in dispute was £953m.
She said officers had been working on the disaggregation but there were a couple of issues that had halted agreement.
She said:
“One of these items is quite significant and therefore we will be looking at a more formal route to determine the split between North and West Northamptonshire. The vast majority of the balances we are there or thereabouts getting them agreed, but it is one in particular, capital financing requirement, and because that is hundreds of millions we do need to make sure it is done appropriately.”
She said the final decision of where the debt went would impact on the ratio of debt to asset which each authority had, which is now a key concern for the government.
Former leader of Kettering Borough Council Conservative Russell Roberts, who was in the important meetings when unitary reorganisation was being handled, said the current situation was shocking.
He said:
“We are talking a billion pounds here and it is going to take a long time to sort out. It is going to take years rather than months to sort out. That is going to impact massively on what we are trying to do. We are trying to create a unitary authority, it is going to affect our ability to do things. This is really not a good situation to be in. Somebody needs to be told what is going on. I’m not an auditor, or an accountant, but I’m sure that people in the room who have got the training must be starting to think ‘things are really not good’.”
He said he was not however advocating rushing a deal and that the North ought to ‘fight, fight and fight again’ for every penny it was entitled to.
Cllr Roberts also asked the external auditor whether he thought the authority was ‘getting critical’ in terms of its finances and Mr Stocks said he did not think the authority was in ‘imminent danger of issuing a 114 notice’ [this is issued when a council cannot balance its books] but did say the auditors would be looking closely at the spending of reserves and the setting of the 2024/2025 budget.
The issue has thrown into sharp focus a problem, which many had predicted in the days before the unitary councils were set up. Many councillors said the debts of the former authority were not being dealt with and the problem passported over to the new unitary councils. There were also concerns about how the debt would be split up. A proportion of the debt is down to the PFI contracts taken out by various political organisations running the county authority dating back to the 2000s. One of the PFIs included building in a number of schools in Northampton. The West Northants headquarters at One Angel Square in Northampton was also an expensive decision which opened just before the collapse of the council. The authority had to sell it on to a private finance firm and then agreed to lease it back over many decades. It is was not said at the meeting whether this is one of the areas of dispute.
In 2018 the government sent in a commissioner team to sort out the closure of the failed county council, however when the Covid pandemic hit in the final year of the authority, it was decided to ensure councils were ‘safe and legal’ rather than services transformed as had been the original plan.
This meant that matters such as splitting up services and deciding on where the debts went was left undecided. As the auditor said at the meeting, the situation the Northants unitaries face is unique and there is not a mirror authority to compare themselves to.
Apologies that the usual Saturday feature was not sent out this weekend - I was suffering with the lurgy that’s doing the rounds. Normal service will resume this Saturday.
Wake me up when this nightmare ends - 50 years should do it. More important reporting, NNJ - keep it up!
The Tory farce in local government continues. Now stretching over generations. In any other organisation they would have been sacked years ago. And who has suffered - the people who depend on public services that have been decimated.