Tory-run Northamptonshire county council bailed out by government

The government has in effect bailed out Tory-run Northamptonshire county council after giving it unprecedented permission to spend up to £60m of cash received from the sale of its HQ on funding day-to-day services.

The highly unusual move – accounting rules normally prevent councils using capital receipts in this way – means the crisis-hit authority is likely to escape falling into insolvency for the third time in less than a year.

Ministers gave the go-ahead for the bailout after commissioners sent in to run the council issued a stark warning that without a cash injection, Northamptonshire would be unable to meet its legal duties to run core services such as social care.

Opposition councillors called it a political move to save ministers from having to directly bail out the council. Labour group leader Mick Scrimshaw said: “It is clearly politics. The Conservative government did not want the political embarrassment and for that reason they have been allowed to use these capital receipts.”

Northamptonshire declared itself effectively bankrupt in February after it realised it could not balance its books. It declared insolvency again in July after a review revealed it had understated the extent of its financial problems. It must make good a £70m deficit by the end of March to avoid insolvency for a third time.

Although the council has already set in train a draconian cuts programme for the current financial year to try to overturn the £70m budget shortfall, the commissioners said this alone would not be enough to prevent insolvency.

In a report to the communities secretary, James Brokenshire, the commissioners Brian Roberts and Tony McArdle said the “extraordinary” scale of cuts to services needed in one year to fill the funding gap would breach councils’ legal obligations.

The report said: “Considered against the concomitant need to maintain the integrity of critical public service delivery, it is a challenge that is beyond being met in a single year. We are compelled to the view that the finding of an alternative mechanism for addressing this legacy will be unavoidable.”

The report notes that the council has been dysfunctional and that morale is poor among “long-suffering” staff. It also criticises its “lack of credible leadership and direction over many years”, though it notes there have been some improvements in culture and management over the past few months.

The council’s leader, Matt Golby, said: “I am delighted the commissioners have been successful in their request for a capital dispensation. This will enable us to use our own resources to tackle the £35m deficit from 2017-18 and replenish our reserves to put us on a sustainable financial position.” The council is hoping to save a further a £35m this year from its cuts programme.

Rob Whiteman, the chief executive of the Chartered Institute of Public Finance and Accountancy, said the move was effectively a bailout for Northamptonshire. Although it went against accepted accountancy rules and practice, it could be justified on the grounds that the council was being abolished.

Northamptonshire is to be replaced by two unitary authorities under plans approved by ministers earlier this year after the inspectors’ report concluded that the council’s management and financial problems were so deep-rooted it could not be easily turned around.

Enabling the council to convert some of the £60m it received from the fire sale of its new state-of-the-art HQ earlier this year – just months after it moved in – will allow it to clear an underlying £35m revenue deficit, and removes the need for ministers to pump money into the council directly.

Ironically, a highly critical inspectors’ report in March was scathing of the council’s readiness to compromise generally accepted accounting principles to present the its finances in a better light. Earlier this month a task force was sent into oversee its failing child protection services.

Brokenshire said: “Clearly, the situation in Northamptonshire is very serious. I am grateful to the commissioners for uncovering the council’s true financial position and the robust steps they have taken to improve its financial management and governance.”