Exeter City Council has reacted energetically to put in place community support measures in the face of the coronavirus emergency. But it faces a drop in income from a single source that raises questions about its short-term solvency and its broader financial strategy in the light of its zero carbon ambitions for the city,

In a report to the council’s Executive meeting on 7 April [1]– the group of senior councillors responsible for making recommendations to full council and for taking day-to-day decisions requiring political clearance – the Chief Financial Officer warned of reduced income as a result of the Covid-19 lockdown. He said: “Without Government support, a prolonged period of income loss will threaten the Council’s viability during the next twelve months and likely require service reductions and the issuing of a section 114 notice.” [2]

The issuing of a Section 114 notice would be a major step. As the City Solicitor states in paragraph 7 of the report: “The purpose of this Section 114 notice is to make it clear to Members of the Council that it faces a financial [word missing] of an extremely serious nature; with a significant unfunded financial deficit forecast in the current year. Any such Section 114 notice, therefore, has serious implications aimed at prompting action to attempt to avoid a negative General Fund balance.”

The Chief Executive provided some essential detail. Because of the government’s stay-at-home orders, the number of people coming into the city during the previous two weeks had fallen dramatically. Consequently, income from car parking had reduced from a budgeted £331,000 to an actual £11,000. The fall in the second week was 98.8%. If the trend continued, the council would lose income of between £1m and £1.2m per month.

Given the council’s working balance – that is the difference between income and expenditure – was a normally healthy £4.3m, it clearly would not take long for the council to breach the legal requirement to balance its books unless it took drastic action to slash services. Central government was aware of the problem – which affected many other district councils – and was said to be “sympathetic”. Given Whitehall’s by now ingrained distrust of local authorities, plus the already massive dislocation of the public finances, the cure may be far worse than the problem.

Now in the light of all this, one might have expected councillors to say something if only to ask about contingency plans. Not a whisper from any of them, including the leaders of the two opposition groups. It may have been that they were too stunned to take it all in. Or the Leader’s injunction not to get into a debate on the wider finances was hypnotic in its influence. Or, simply, that now was not to the time to rock the boat.

The nearest we got to an acknowledgement that things were tricky was the removal from the agenda of several reports seeking approval for new capital spending amounting to £6.36m with consequential annual revenue costs of £0.23m. The Leader said it was not “appropriate” to discuss these now.

What is clear about the council’s finances is how dependent they are on a single source of income, namely fees from car parking. This clearly presents a challenge since the council’s goal of the city being carbon neutral by 2030 will depend in large measure on reducing private motor traffic in the city on a permanent basis. No cars equals no car park income.

A radical mindset change is now needed. The council is looking at other ways of income generation, though these are as yet untested. But to show how far it needs to change, we only need look at one of the capital schemes that was removed from the agenda.

Put very briefly, officers were asking for up to £3.9m to carry out repairs and improvements to the hideous Cathedral and Quay multi-storey car park off Western Way. Because the full extent of the repairs required would not be known until work had started, the report stated that additional funds above the £3.9m would almost certainly be needed. Somewhat naively, given what every person commissioning capital schemes should know about the problems with construction projects, the report’s author stated boldly: “There are no risks in proceeding with the proposals.”

I have an alternative suggestion which would both save money and help with the 2030 carbon neutral target. Demolish the car park, and build a few houses instead.

 

NOTES:

1. The report is agenda item 7, para 5.
2. Section 114 of the Local Government Finance Act 1988 requires the Chief Finance Officer to report under this section “if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.”