ST HELENS Council may not be able to withstand any more economic shocks in the future if it does not rebuild its reserves over the coming years, its external auditor has warned.

An external audit of the council’s financial statements for 2019-20 has yet to be finalised due to the impact of the Covid-19 pandemic.

However, a substantially complete report from auditor Grant Thornton went before councillors this week, with a warning about the future use of reserves.

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In recent years the council has begun to chip away at its reserves, which are typically there for a rainy day.

Council chiefs are currently looking at how it can cut £20.4 million out of its budget for 2021-2022, but have been advised against plugging the gaps with its reserves.

“Proposals are being developed to address the current forecast budget pressure for 2021-2022,” Grant Thornton said in its external audit report.

“However, this represents a significant savings challenge as it equates to 4.7 per cent of gross expenditure, which will be very challenging in the current operating environment.

“Whilst the council does have sufficient reserves to absorb any shortfall, this would leave reserves extremely low and therefore we would strongly advise against this.”

In 2019-20, the council had to call on £8.5 million of general fund balances in order to deliver a balanced budget.

This reduced the general fund reserves, including earmarked reserves, to £61.1 million as of March 31, 2020.

For 2020-21, the authority set a one-year budget, which included the use of £4.9 million earmarked reserves to arrive at a balanced budget position.

In comparison to similar sized authorities, the use of reserves in 2019-20 has taken the reserves to a below average level.

Andrew Smith from Grant Thornton assured the audit and governance committee on Monday that St Helens was not in the “danger zone”.

But he said the authority will need to rebuild its reserves over the next three to five years in order to avoid going into more perilous territory.

Mr Smith also told councillors St Helens’ situation was “far from unique”.

He said lots of authorities are having to utilise reserves this year due to the extent of expenditure and income losses as a result of the Covid pandemic.

Mr Smith said: “I think the key thing for us from an audit point of view is that the council avoids the utilisation of reserves to balance the books in the next few years.

“Obviously, budget gaps have been identified and I know the council is working very hard to identify schemes to avoid use of reserves going forward.

“For me, I think in the short-term, in the next couple of years it’s really largely about avoiding the need to use reserves, to identify enough savings to avoid the need for that and then hopefully in the three to five year period, hopefully then starting to contribute back into reserves to rebuild them.

“Our concern, from an audit point of view is if reserves aren’t built back up, the authority might not be able to weather another shock like Covid.

“Hopefully, there won’t be another Covid, but it would be hard to see how the council would be able to weather something similar to this in the next five years if it was to come along.”

The warning came just two days before the council discovered what funding it would be receiving from central government next year.

Local authorities have been given the go-ahead to raise council tax by 4.99 per cent next year, which includes a 3 per cent adult social care precept.

Chancellor Rishi Sunak said the settlement will allow local authorities to increase core spending power by 4.5 per cent.

But St Helens Borough Council leader David Baines said the Chancellor had offered “nothing like enough for local government”.

Later that night, the Labour cabinet held a budget setting meeting where they discussed proposals to close the projected £20.4 million budget gap for 2021-22.

In a series of candid tweets, Cllr Baines said it was the “lowest I’ve felt in all my time as a councillor”, and said the authority has “no choice” but to cut services.

Cllr Baines said: “On the same day as the Chancellor, most senior politicians, and much of the media have ignored the plight of local councils and the essential services they provide, it’s a sobering and lonely experience to be forced to look in black and white at council services and make cuts.

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“Luckily I have an outstanding and strong cabinet, a Labour group, and a team of officers who care about our communities and residents.

“If the Tory government cared half as much, we wouldn’t be forced to make such impossible decisions.

“I had hoped that post-Covid, government may have realised the importance of councils. Sadly, they have not.”