Derby City Council reports £6m budget black hole

Further spending controls look likely to be introduced next week

A £6m black hole has opened up in Derby City Council's budget in the past six months.

The gap must be closed before the end of the financial year to avoid calling on reserves, the authority's head of finance has warned.

If reserves go much lower, the council could end up teetering on the brink of bankruptcy next year.

Councillors will now be asked to agree further spending cuts and a recruitment freeze to prevent this.

A report from head of finance Toni Nash states the budget set in March for the year ahead had a budget gap of zero, but she says there is now a predicted overspend of £6m, which would wipe out the current budget risk reserves of less than £5m by April.

If no preventative action is taken the overspend will "deplete reserves, to the point that could put at risk the financial sustainability of the council", the report states, referring to the risk of a Section 114 (S114) being issued by the section 151 officer to declare effective bankruptcy.

Council leader Baggy Shanker said the council needed to stabilise the situation

The report states the council is "not in imminent danger of being in S114 territory, but it would also be misleading to suggest our financial position is anything less than the most challenging it has been since the authority became a unitary council in 1997".

It continues: "Key to the authority's financial resilience are the useable reserves, which if needed to fund any out-turn budget pressure would be lower than advisable by the section 151 officer.

"The projected overspend of £6.091m... requires a further draw down of reserves.

"If current planned overspend mitigations are not successful, this will have a material impact on the council's financial resilience."

Councillors will now be asked to agree further spending controls at a meeting on Wednesday, including more cuts to services, generating income by leasing out rooms in the Council House and using more artificial intelligence to deal with phone calls.

Council leader Baggy Shanker said councillors would do everything they could to "stabilise" council finances "with whatever means we have".

"No-one underestimates the challenge we are facing," he said.

"Our diminishing useable reserves, which the previous administration relied upon to plug the gap for far too long, are of particular concern and our future plans include building them back up."

Accusing the government of "cash starvation" of councils across the country, Mr Shanker added the push for councils to generate their own income "doesn't work in a city like Derby, where most of our households are Band A-C properties and will never raise enough money to be able to adequately fund public services".

He added: "We are focused on doing the best for the people of Derby with whatever means we have.

"We are a strong council, taking every step to keep us on a stable financial footing, and remain ambitious for our city."