Somerset Council could be forced to declare bankruptcy this spring unless it implements steep council tax hikes or receives “exceptional” support from the central government.
The local authority sounded the alarm on its financial crisis in November 2023 and managed to establish a balanced budget for February 2024 only by endorsing substantial savings, workforce reductions, and the disposal of commercial investments along with surplus land and property.
To achieve a balanced budget for the 2025/26 fiscal year, the council is depending heavily on reducing its staff numbers, with redundancies contributing £34m to the planned £47m in savings. However, escalating costs and increased demand for services, especially in children’s services and adult social care, have resulted in an anticipated budget shortfall of £66m despite these measures.
Council leader Bill Revans is petitioning the government for “exceptional financial support” and has requested permission to increase council tax beyond the current 5% cap. Without such assistance, the council may be forced to issue a Section 114 notice, effectively admitting insolvency and inviting central government commissioners to intervene at the expense of taxpayers.
Council tax bills are pegged to property valuations dating back to 1991, using a Band D property as the standard measure. In Somerset, though, there’s a larger segment of the population residing in properties beneath the Band D threshold, rendering the council’s capacity to generate revenue through council tax relatively limited when compared to more wealthy areas.
The council has implemented cost-saving measures by overhauling its council tax support scheme—a change passed by the full council in December and is expected to yield annual savings of about £4m. Local authorities can only increase council tax by a maximum of 4.99% a year without having to hold a referendum – of which 2% is ring-fenced for adult social care, leaving 2.99% for other services.
Mr Revans has sought intervention from deputy prime minister Angela Rayner, proposing a request to exceed this council tax cap, aiming to bring Somerset’s rates closer to those of other local authorities in the South West. He said: “Without additional funding we have had no choice but to ask the government for permission to increase council tax above the5% cap.
“This is not a decision taken lightly, but our council tax base is below the average nationally, and the feedback from our residents suggest they would rather pay more than see services cut. Last year, the previous government rejected our request for a 5% increase.
“We warned that without reform this would mean deeper cuts and steeper tax increases in future. Sadly, this is now the reality.”
If the cap cannot be raised, the council has asked the government to extend its capitalisation directive – which allows the council to use the proceeds from selling off land, property and other publicly-owned assets to fund day-to-day spending on public services. The council has been in the process of selling off large amounts of its “non-operational assets” and inherited commercial investments to this end, with officers estimating that these sales would have generated around £50m by Christmas 2024.
If the government fails to respond to Mr Revans’ appeals, Somerset Council may be forced into de facto bankruptcy, issuing a Section 114 notice. This would result in government-appointed commissioners stepping in to make stringent decisions about the running of Somerset’s public services, without substantial democratic input and at the cost of local taxpayers.
Mr Revans added: “We have done everything we can to reduce our costs with a series of unprecedented and heart-breaking decisions since 2023.
“We are determined to take decisions locally, remaining accountable to our residents, rather than calling in expensive commissioners who would take the same actions without local knowledge or accountability. We recognise that any increase in council tax will have a significant impact on our residents and have pledged to increase funding to our exceptional hardship fund, in place to provide support for residents on the lowest incomes.”
Like this story? Why not sign up to get the latest South West business news straight to your inbox.