Derbyshire County Council bankruptcy concerns after new budget forecast

A cash-strapped council is now forecast to overspend by a further £8 million – to £28 million – edging it towards effective bankruptcy. A new report shows that Derbyshire County Council is now forecast to overspend its £741 million budget by more than £28 million, increasing from the £20 million forecast in the first quarter of the year.

It is now predicting an overall budget spend of £769 million – £28.1 million more than it had set aside money for. The council needs to make £30.4 million in cuts this year to meet a balanced budget, as well as tackling this £28.1 million overspend, leaving it having to find around £60 million from either further cuts or its reserves.

It says the budget forecast already involves using £21 million from its general reserves – adding to £114 million it has used over the past two years. The council has £35 million in reserves remaining and officials say the council “cannot fall below £25 million” but it is now in the position where this is forecast to drastically decrease to £7.3 million – one per cent of the authority’s overall annual budget.,

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A report from Mark Kenyon, finance director, and Emma Alexander, managing director, dubs this “clearly unacceptable” and that the council “needs to take corrective action”. It makes clear that if a council cannot reach a balanced budget through savings and reserves the chief finance officer will issue a Section 114 notice – declaring effective bankruptcy – in which there would be a freeze on all new spending and possible central Government intervention to right the ship, typically involving commissioners.

In response, the authority is once again pausing recruitment “where appropriate”, freezing or deleting vacant posts, reviewing its use of agency staff, and reducing spending on procurement to focus “only” on essential areas. The authority has not yet said if the budget issues will lead to job losses but says the impact on the workforce is being monitored.

It is also to set up a “budget commission” of cross-party leadership, chaired by leader Cllr Barry Lewis, with the first meeting to take place in December, assessing the “causes of the significant increased costs being experienced by the council”. The authority details: “Continuing demand and cost pressures in adults and children’s social care services are resulting in forecast expenditure being significantly in excess of budget.

“The forecast overspend has increased significantly since quarter one. This is mainly due to additional forecast expenditure on placements in children’s social care, and expenditure on special educational needs (SEN) and home to school transport is increasing as a result of continued growth in numbers of Education Health and Care Plans (EHCPs).” A report on the issue shows that the increase is almost purely due to children’s social services budget increases of £8.9 million (undercut in the overall overspend by some savings elsewhere).

This comes weeks after the council’s SEN support was criticised in a joint report by Ofsted and the CQC, which found “widespread and/or systemic failings” which had been occurring for “far too long”. The council says that its £301 million adult social care budget is due to overspend by £25 million and its children’s services budget of £165 million is due to overspend by £22 million – some of which is undercut by savings of £17 million in the corporate budget (£71.5 million down to £54 million).

It says: “The forecast overspend on placement costs has increased due to revisions to expected move dates for children changing placements. Changes to children’s care arrangements must be made at their pace and taking account of changing circumstances.

“This, coupled with a lack of suitable foster care placements internally and externally, is resulting in continued use of high cost residential placements. As at the end of September 2024, there were 1,034 children in care, of which 49 per cent were in external placement.

“£14.7 million of the overspend relates to external residential placements and £3.3 million to semi-independent living placements, due to numbers of children in these placements being significantly greater than afforded by the budget. Pressures also continue to increase due to high demand for Education Health and Care Plans (EHCPs), which results in an increasing number of children being eligible for funded home to school transport.”

It aims to move 54 children from residential care into a “family environment” to save £3 million. The council says: “In common with many local authorities, the council has faced significant cost pressures and increased demand for services over recent years which has presented financial challenges.

“The council is committed to ensuring that it sets a balanced budget over the medium term, ensuring good financial management and sustainable use of reserves. The impact of the budget savings programme on the workforce is being monitored and regular updates provided through the budget savings programme board.

“Over recent years, there have been significant increases in costs arising from high levels of service demand and inflation which has led the council to use its reserves to support the cost of delivering its services. The result of these higher costs, reserve spend and the relatively higher cost of the council’s operating model, has placed the council in a position where it can no longer continue to deliver its services with the same operating model, and must change it, both to ensure that its services are affordable, and to offer opportunities to invest in improving service areas.”

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