Parish Councils going bankrupt!

Question

Last night our Chair claimed many Parish Councils had “ gone bankrupt “ due to Covid

Apart from the fact bankruptcy involves an individual rather than an organisation I wondered if any subscribers were aware of any Parish Councils that are in severe financial difficulty because  of Covid

Answer 1

Putting aside the word bankrupt for obvious reasons I cannot see why any PC can claim "covid" for what can only be mis- management of public funds by a council.
Did the allocation of precept payments stop during that period? No! Did councils find difficulty in getting work done? Yes! So if the precepts were bid for and received and less money was spent out then no council should be in such a position as stated by this chair. In fact the opposite should be true and councils should have massive amounts in their coffers and be spending it to catch up on all the budget requirements they put on hold due to "covid".
Unless of course their management is to blame- the buck stops with the Parish Counillors- after all that is what they signed up to.

Comments

Mentorman I totally agree as 90% of my PC’s budget comes from precept and burial fees on top of which they claimed a huge COVID support grant for reasons that escape me
The reason for my question is I believe the Chair is scaremongering to support keeping massive amounts of money rotting in low interest accounts for no reason
The reason for my question is that I wondered if there was any examples to support her claim

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Jules you are probably on the money with that conclusion( pardon the pun!). There are too many PC's who seem to feel that a load of money in the account is somehow a measure of their success and lose sight of what the money is made available to them for- prudent use for the benefit of the community they represent

Answer 2

I would ask your chairman to name the parish councils that have 'gone bankrupt'.

Comments

John chance would be a fine thing!

We were once told that the reserve could only be used only if the precept was not paid over

Answer 3

There have been a number of press reports on the subject. e.g.

https://www.theguardian.com/society/2020/jun/23/at-least-8-in-10-english-councils-need-help-to-avoid-going-bankrupt

Similar headlines such as 'Town and parish councils across South Yorkshire ‘fear bankruptcy’ if Government does not step in and provide much needed resources'

Perhaps this is the source of information?

Whether there was any bankruptcies is another matter!

Comments

The key in the article is the term used "upper-tier" councils.  A combination of limits on funding, limits on their ability to raise council tax, loss of revenue from things like leisure centres (as the article states) have led to a real squeeze on finances available to deliver those services that upper tier councils have to deliver.  But note, this is not town and parish councils although the knock on effect is that town and parish councils are having to take on more services locally in some areas such as non-statutory services like the provision of litter bins, grass cutting and the like.  Other than mismanagement, there is no reason for a parish council to go bankrupt and holding huge reserves is definitely not recommended and will be commented on by auditors.

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It seems to be a modern habit of not reading past the headline or questioning the voracity or actual content of such articles. I suppose its decades of reading the Sun and the Mirror and the other red tops.

Answer 4

It would take serious maladministration for any tier 1 (Town/Parish/Community) council to actually end up in a situation where it was unable to meet its liabilities. Given this tier is not subject to "caps" to precept rises unfortunately the residents would simply absorb costs associated with any incurred liabilities to service debt. Quite a few aided by increasingly ambitious Local ALCs do seem to be prepared to take increasingly bigger risks mind. I see more and more taking on debt, bigger projects, bigger responsibilities, bigger risks.

Comments

I’ve tried in vain to explain that with low interest rates it’s value for money to run a low reserve and risk possibly having to borrow money than lose value by having large amounts of money in low interest accounts

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Must be very frustrating. I've never understood why auditors routinely accept huge reserved akin to Bank of England with no clear purpose. Should be been pulled up on it but sadly audit regime is at best inconsistent.

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Good point. Since we have elected a new chairman, and along with his cronies, our council seems to be empire building, recruiting more staff, ambitious plans, etc etc. Great when you can spend other peoples money!

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The biggest issue with the dreaded "empire builder" is what happens next. There attention seems to lurch from one project to the next (very rarely actually finishing or indeed really starting anything). My worry remains that the sector does not have sufficient safeguards to stop the madness. Some seem to be passengers in this process gripping on to seat and hoping for best with no real mechanism to effect change.

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There’s always a tension between keeping the precept as low as possible and providing more services that’s why you need to canvass public opinion
We were told it was prudent to keep large reserves I disagreed and said it was wrong to take money off our residents for no reason
It’s now being claimed NALC recommends 12 months reserves which would mean if you wanted to spend an extra day £10,000 you would have to raise the precept by £20,000

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Te Practitioners Guide states 12 months precept in reserves as being the absolute maximum for a very small council unless reserves are earmarked for a specific project (a new village hall for example) with most councils recommended to hold between 3 - 6 months in reserves.  I once clerked for a very small council that had a large insurance claim when a tree fell down on a building.  All covered by insurance but there was a requirement to meet urgent and immediate costs and then claim back through insurance so their 12 months reserves were only just sufficient at the time.  Having said that, I'm sure there could have been some arrangement with insurers had it come to that.  My own (larger) council is very cash rich at the moment but only because we've been given a number of grants upfront of the planned expenditure so all of that money is earmarked

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Earmarked reserves still have to be reviewed at least annually and if specific ones have been there a long time you have to ask are they really necessary and if they are necessary why not start the project now
This is especially the case with high inflation and low interest rates

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I guess the issue is who regulates the "annual review".  The councils who sit on reserves akin to the Bank of England seem to have quite comfortable relationships with longstanding auditor who "done it for years" and reluctant to really do anything other than rubber stamp and pat them on back.

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I asked our internal auditor if their role included checking out if the PC was using the principles of value for money and they just passed my request straight to the Chair
I also asked if there were aware of cash collected on behalf of the PC which I couldn’t see in the accounts that was passed to to Chair as well without comment

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The fact is that PCs are to all intents and purposes untouchable. Ours certainly isn't going broke  with reserves of nearly 3 times the percept. Its obscene.   The problem is that Councillors are leaving in droves leaving those "in control" with an even tighter grip on the purse strings

Answer 5

Time has moved on since this question was asked, and according to this article a Town Council is effectively bankrupt as it has not been able to pay staff or has been paying them late.  

"If this was a tier 1 or tier 2 council, the government would effectively have taken over the running through civil servants..” 

"These same mechanisms don't exist for town and parish councils so the government has no right to intervene, nor does Chesterfield Borough Council."

A spokesman for the Department for Levelling Up, Housing and Communities, said it "cannot provide direct financial support" but added it’s been engaging with Staveley Town Council and Chesterfield Borough Council to help find a "local resolution as soon as possible".

https://www.bbc.co.uk/news/uk-england-derbyshire-64324922

Comments

The common denominator for Councils in all three tiers hitting problems is over extending themselves with big projects they failed to fully research
You have to ask yourself what were the Auditors doing ?