Cardiff Council ‘not at risk of bankruptcy yet’

Ted Peskett, local democracy reporter

Cardiff Council is in a difficult financial position, but not at risk of bankruptcy yet, according to its cabinet member for finance.

However, Cllr Chris Weaver did warn that difficult decision are expected in next years budget.

This year, Cardiff Council faced its most challenging budget position in decades. Even with a better than expected Welsh Government settlement, the local authority was left to deal with a £24m budget gap.

This ultimately saw a number of controversial money making and money saving proposals put forward by the council, like increasing council tax, turning the Museum of Cardiff into a mobile attraction and transferring the operation of St David’s Hall to a private company.

Not all of these proposals went ahead – the Museum of Cardiff stayed at its home in the Old Library on The Hayes – but many did, and the transfer of St David’s Hall to major venue operator Academy Music Group (AMG) is expected to save the council millions.

Worsen

However, the council’s settlement from the Welsh Government this year is not expected to be as favourable and things are expected to get worse before they get better.

In an interview with Cllr Weaver conducted in November, the Local Democracy Reporting Service asked how long Cardiff Council can continue in the financial trajectory that it is heading in.

“We have not had an authority in Wales reach that point,” said Cllr Weaver, referring to the fact that a number of councils in England have had to issue what is called a section 114 notice.

This happens when a local authority looks like it will be unable to set a balanced budget for the financial year ahead.

Unlike businesses and other institutions, councils have to set balanced budgets as they are legally obliged to deliver vital services like social care and waste collection.

Birmingham City Council and Nottingham City Council are among the local authorities that have so far issued section 114 notices.

Difficult choices

Cllr Weaver continued: “We have had slightly more support from the Welsh Government over the period to help us through this.

“We are not in that point in Cardiff. We are not in that point at this stage. We will have to make difficult choices if the budget is as accepted.

“That will mean, potentially, cuts to services as well as continuing to try and drive out every efficiency and transform the way we work… to spend our money as efficiently as possible.”

The reaction from the Welsh Local Government Association (WLGA) to the UK Government’s autumn settlement was one of disappointment.

Leader of the WLGA, Cllr Andrew Morgan, called the autumn statement a “missed opportunity” for the Government to invest in local communities and said cuts from 2025 to 2026 will have a “devastating” impact.

Autumn statement

Commenting on the Autumn statement and the cuts expected to public services, Cllr Weaver said: “I think across the country, you just have to see that local authorities will simply be smaller and we will have to do less and that really worries me because we have been trimming services and cutting services and making services more efficient for many years now.

“These are services that people actually really rely on and if we go through another period of years of deep real term cuts… I think you are just talking about less help and smaller services for people locally, which I just think is going to cause real damage to our communities.”

Biggest pressure points

Much like councils across the country, the biggest reasons why Cardiff Council faces such a large budget gap are spiralling inflation, increased costs and ever increasing demands on its services.

Children’s and adult social services are two of the areas where the biggest budgetary pressures are coming from, and demand on these is rising.

The local authority will look for savings across every service area, according to Cllr Weaver.

He said: “We have children and adults with more complex needs and we have that statutory duty to support them.

“We are always looking for ways to provide the best form of intervention for people at the right point and if you can give people early help so that people for example can stay in their homes longer and that help is appropriate, that could potentially prevent a more expensive placement that people have to be in.

“We are always looking to do that, but we can see the demand rising there.

“We will be looking at ways to try and reduce that demand to try and provide services that stop us needing to provide the most expensive form of care and support and so there will be potentially some savings in those areas that we will identify through those ways of working.

“But, those are services that support some of the most vulnerable people in the city, they are statutory services and so whilst there will be some savings we try to make in those, they will be taking up a big part of our rising costs.”

Thinking outside the box

Welsh councils are facing a combined budget gap of about £411m.

Cardiff Council is anticipating a budget gap of £36.8m for 2024/25 – making up nearly 10% of the Welsh total.

When asked if the council has come up with any innovative solutions to meet the challenges it now faces, Cllr Weaver said: “There are and there is lots that local authorities have done over the last decade I think that is really quite innovative and trying to transform our services.”

Examples that the cabinet member drew attention to was its procurement team and work with partners.

He added: “It is not just Cardiff Council’s procurement team, we are working with three other local authorities, pooling our resources together and getting that economy of scale and trying to deliver the procurement across those authorities.

“We are looking at ways that we can use digital transformation to improve our efficiencies to deliver services for less.”

However, he said there is no “silver bullet” to the issues that council’s are currently facing, especially when budget gaps are as big as they are expected to be.

Cllr Weaver said: “there are creative and innovative things we are trying to do. It actually gets very difficult to keep doing those whilst your budgets are cut because services are being stretched thinly.

“We will keep looking for all of those opportunities, but there isn’t that silver bullet unfortunately so it is going to be a combination of trying those things but also looking at, if necessary, in order to balance that budget, what services we may have to reduce.”

Property assets

The council has often looked to changing the way some of its assets are run in order to save money.

Over the years, the city has seen the operation of the New Theatre taken over by HQ Theatres and more recently it was announced that St David’s Hall will be changing hands too.

Cllr Weaver said: “When you face a budget challenge of this scale, you do look across all of your services for opportunities. I think you identified some things that we have already seen, and in some cases done. The New Theatre used to be fully council run.

“We have already found a partner who has taken that over in the same way [as] is happening with St David’s Hall, clearly affected by the issues of the roof, the RAAC (Reinforced Autoclaved Aerated Concrete) concrete issue in terms of the timing, but the process continues.

“There are fewer and fewer things that [the] council runs in that sense though because we have over the years looked for innovative ways to try and get those out, but it is something we will be looking at and any proposals will go to consultation for the public in the new year.”

Although the change in operator of St David’s Hall will save the council money where repairs and maintenance is concerned, concerns have been raised over the impact that transferring it could have on the city’s classical music programme and employees there.

The loss of money faced by the classical music venue as a result of its temporary closure, due to ongoing maintenance and RAAC removal work, also points to the amount of income that the council will be missing out on when the transfer goes ahead.

A recent council report showing the local authority’s financial performance in October showed that St David’s Hall experienced an income shortfall of £1.6m.

Cardiff Castle

The report also stated that there was an income shortfall at Cardiff Castle amounting to £248,000. There were also shortfalls from City Hall functions (£544,000) and functions catering (£419,000).

Cllr Weaver added: “St David’s Hall, although we did obviously bring in an income, our costs were higher than our income, so every year we had an element of subsidy to St David’s Hall.

“There was a shortfall, we weren’t making a profit off it and that was part of the problem with the revenue budget. It was costing up to about £1m a year for the revenue budget.

“We made an income. They did a great job of making an income, but the costs were higher and then when you look at the capital costs we needed for fixing the roof which we identified in the survey, that would have been an enormous pressure on the council.

“The transfer will make a huge long term beneficial impact to the council.

“The castle is slightly different because the castle does make a profit. It is not making as much this year quite as we would have hoped.

“Post pandemic, some of these venues haven’t quite made back the income that they were making before, but the castle does actually bring in income to the council.

“Those two assets are different.”

Cllr Weaver later continued: “What we want to do is make sure that we can try and bring in as much as possible to help with the overall wider budget and that is what we look at with our assets really.

“Some of our assets potentially bring in money, some have a subsidy attached… they cost a little more than the income we bring in.

“We will look at those that have a subsidy first because obviously if we are able to find that new model, it saves us money year after year.”

Major projects and financial risk

There are a number of reasons why a council might get into enough financial difficulty to issue a section 114 notice.

In the case of Birmingham City Council, it was mainly a £760m liability relating to historic equal pay settlements and the high cost of implementing an IT scheme.

Some councils, like Woking, Thurrock and Slough, issued section 114 notices in 2023, 2022 and 2021 respectively after borrowing too much for property investments.

Croydon Council issued a section 114 notice for a third time in November 2022. A large portion of its debt is made up of negative equity on poor investments.

Cardiff Council is paying £138m up front for the building of a new arena in Butetown and an additional contribution of £27.3m is being made towards the project from earmarked capital funds and borrowing.

The £138m will be recovered from the arena operator, Live Nation, through annual lease payments over the course of a 46-year contract, but the huge numbers involved in the project have raised concerns among some councillors and members of the public.

Cllr Weaver said there is a difference in what Cardiff Council is doing compared to what other authorities that ended up in financial difficulties were doing.

He said: “They were buying things like a shopping centre in order to bring that yield to bring in the income as a profit to pay for services.

“The arena development is a regeneration project.

“We are not taking on huge borrowing to try and bring in a big income to subsidise our services because of the real risk there has been to local authorities in doing that.

“What the arena project does aim to do though is pay for itself and over the forecast of our financial model, is that over the lifetime of the arena, the 46-year lease agreement that there is, that will bring back a small surplus to the council.

“We have worked very hard to try and find a way so that overall the council brings back money that it puts out in the investment.”

Risks

Council officers acknowledged at a scrutiny committee meeting in November that there are risks with the arena development, but added that there are a number of mitigations which can be put in place to manage the risks.

Cllr Weaver added: “We have identified ways in which we can minimise and mitigate those risks, the ways in which we can ensure that it remains an affordable project for the city and one that delivers these regeneration benefits.

“It is absolutely right and understandable there are lots of questions and interest from people in the city around this and how it works and I hope it reassures people.”The council’s budgetary situation is not expected to improve in the years beyond 2024/25.

A report published by the local authority stated that it expects a shortfall of about £119m over the next four years – a sum labelled “frightening” in an October council meeting.

Cllr Weaver was asked if he can see any light at the end of the tunnel for Cardiff.

He said: “Where I see positives or light at the end of the tunnel are, despite the very challenging positions, there are some transformative projects happening. You look at our council house building programme.

“I think looking at the area as a major regeneration project, you can see there that those are dealing with some of the structural challenges that Cardiff faces and are planning for that future.

“Those are things that can bring real benefit to Cardiff, not just as soon as they open, but for decades to come and so I see that as a positive.

“I see the innovative work that our services are able to do in social services, trying to help people at the most appropriate point.”

The cabinet member also referenced the growing partnership work that the council is participating in as a reason for optimism.

He added: “It is not just the city deal, but also the public services board, close working between the health service, the council, the police.

“Those things I see as real positives and I think there is alignment with, for example the wellbeing goals of the council, the healthboard, the police, that mean we are joining up our public services in the most effective way.

“Despite what I think are potentially very difficult and damaging cuts frankly to public services if this mad austerity continues, I think those are positives that will last and will serve the people of Cardiff well for decades.”