A bankrupt county council siphoned off £9 million meant for school improvements in a desperate bid to prop up its depleted reserves, it has been revealed.
Northamptonshire county council hit the headlines in February after its bank balance plummeted so low that it was forced to bring in what’s called a Section 114 notice, banning all new spending.
But the revelation that it had diverted funding meant for schools towards other costs has prompted warnings that other authorities could do the same.
The council’s grip on its finances has since been the subject of several investigations, and the Huffington Post reported this week that it moved the £9 million into its general revenue account last year.
An external audit report by KPMG into the council’s finances in 2016-17 revealed in August last year that it had delved into its reserves in an attempt to keep afloat, including funds raised through “Section 106” payments from housing developers, which are meant to fund community projects and local services.
The size of the cuts councils are having to make is simply too big to be plugged by reserves
The report said “mitigations” made by the council included “£9 million of S106 developer contributions set aside to fund future educational improvements within the county”.
S106 agreements are legal obligations with developers which aim to balance out pressures created by new developments with improvements to the local area, and include a variety of infrastructure including schools.
According to the audit report, the £9 million will be “refinanced through council borrowing”.
A spokesperson for Northamptonshire county council insisted the Huffington Post story was incorrect until Schools Week provided a copy of the KPMG report.
She then claimed the council has governance measures in place to “ensure agreed investment for infrastructure is made in full and in a timely basis”. This covers both the council’s S106 obligations and its capital projects for schools.
Don Peebles, from the Chartered Institute of Public Finance and Accountancy, warned that Northamptonshire “is ultimately unlikely to be a unique or isolated case”.
“The whole sector faces pressure owing to cuts, funding pressures and service demands, and could face a £5 billion funding gap by 2020.
“It’s a task for the government to work with councils to ensure finances are sustainable, but it is also down to local authorities to keep a check on their medium term financial planning, to have in place robust governance and financial oversight, and also to heed the advice of outside experts.”
The Local Government Association is concerned that councils across the country are having to divert “ever-dwindling resources” from other local services in an attempt to plug “growing funding gaps in adult social care and children’s services”.
“Reserves are designed to help councils manage growing financial risks to local services and do nothing to address the systemic underfunding that they face,” a spokesperson said. “The size of the cuts councils are having to make is simply too big to be plugged by reserves.”
31.7 per cent of local authorities now see funding education and children’s services as their greatest immediate pressure, up from 6.8 per cent last year according to a report released by local democracy think-tank LGiU and The Municipal Journal in February.
Lucky there weren’t so many of those private-sector academy trusts in Northamptonshire siphoning school money out of the public purse and the schools had the reassurance of a publicly accountable local authority looking after the finances.
Money allocated to schools should be spent on schools. This should be enshrined in law. Councillors would perhaps be less eager to raid the education pot if such action was made illegal. http://www.bbc.co.uk/news/uk-england-northamptonshire-42944394
Similarly, if related party transactions in academy trusts were also banned then trustees would be deterred from siphoning money from funding to companies associated with trustees or relatives.
Nice attempted pivot away, but why not address the issue here?
This is an example of a local authority which has seemingly behaved shockingly when it comes to education. Time and time again you have commented that local authorities are better because they are “accountable” – how has this so called accountability helped the schools and communities in Northamptonshire?
If £9 million had been given to academy trusts in Northamptonshire do you think more or less would have ended up in schools?
Mark – local voters can vote them out – that’s what accountability means. But elections for county councils won’t take place until 2021.
I agree that Northamptonshire ‘seemingly behaved shockingly’ towards education by raiding the S106 revenue of £9m.
Academy trusts would argue all their income goes on education but this raises questions: were related party transactions at cost, properly procured and declared?. Was the academy credit card used appropriately? If the money wasn’t appropriately spent, it wouldn’t matter if it a tiny proportion of total expenditure (as is the case with Northants) or not. It would still be wrong.
So the voters in Northamptonshire have to wait three years, at which point I would be prepared to bet a large sum the alleged ‘misappropriation’ of the £9 million won’t affect the vote at all.
And yet in academy trusts the DfE can force out a Trustee who’s done wrong at any point.
And I know you’re so focused on related party transactions, but your reference to “a tiny proportion of total expenditure” got me thinking. I had a quick look at the figures to find out what proportion of academy trust’s expenditure went on related party transactions – turns out the figure is 0.6% (£120 mill out of £19.21 billion).
I’m sure not even you think that every penny of the £120 million was unwarranted profit that ended up directly or indirectly, in a Trustee’s pocket. If half the related party transactions generated a 10% profit (and I would suggest that massively overestimates the problem on both counts) we’re looking at 0.03%
Just putting it into context …
Local MPs in Northamptonshire allege that the Conservative-run council ‘repeatedly’ told the Government it could balance its books. It would have been more honest for councillors to have spoken up loudly and clearly that the Gov’t is underfunding councils to such an extent that they can’t function. But how likely is it that Tory councils will criticise a Tory gov’t? http://www.bbc.co.uk/news/uk-england-northamptonshire-42944394
What, like this one: “Conservative council leader tells ITV News: We need more government cash to avoid financial disaster”
(http://www.itv.com/news/2018-03-08/conservative-council-leader-tells-itv-news-we-need-more-government-cash-to-avoid-financial-disaster/)
I appreciate it suits your narrative to try and paint this as an anti-Tory issue, but does your logic mean that for the 13 years we had a Labour government we couldn’t trust Labour councils to be honest?
Mark – I don’t know if you read Private Eye but its Rotten Boroughs column regularly lists dishonesty in councils of all types. But at least voters can kick the dodgy councillors out.
Private Eye has a circulation of about 250,000, or less than 0.4% of the UK population. Even if every single reader was outraged about a particular story covered in a Rotten Boroughs column it wouldn’t make the slightest difference.
I’ve pointed out previously instances where Councils, and named individuals, have been named and shamed by media, the courts etc. and it hasn’t resulted in anyone losing jobs or power.
Yes, in theory the public can kick dodgy councillors out but it’s just not an effective safeguard for all but the most egregious ones.
Mark: Thanks for the link – hats off to the Tory council which spoke out against gov’t cuts. I’m willing to re-assess my opinion about Tory councils being reluctant to speak out especially as Tory Lincolnshire is lobbying for fairer funding after admitting ‘huge cuts’ in what it receives from central gov’t. https://www.lincolnshire.gov.uk/local-democracy/a-fairer-funding-deal-for-lincolnshire/131671.article
Your linked article also said the NAO had found 50% funding cut to LAs by central government since 2010. So the shortfall is the fault of the Coalition and the Tories. Perhaps if these governments hadn’t been so parsimonious, Northamptonshire and other LAs wouldn’t be in a similar situation.