Somerset Council will be able to set a balanced budget for the next 12 months - but it remains on the government's "naughty step" due to its reliance of exceptional financial support.
In an all-day meeting in Taunton on Wednesday (February 25), the council's executive committee voted to provisionally approve its annual budget, which will go forward to the full council for final approval on March 4.
The council will be able to set a balanced budget for the coming year, involving a 4.99 per cent rise in its share of council tax bills and a third successive year of exceptional financial support from the Ministry of Housing, Communities and Local Government (MHCLG).
But Clive Heaphy, the council's interim chief financial officer, warned that the council will not get a fourth year of such support - meaning the authority faces a race against time to get spending under control and avoid effective bankruptcy before the next local elections.
As part of his Section 25 report (which assesses whether the council will be a 'going concern' financially for the coming year), Mr Heaphy said that the government's fair funding review had only brought "marginal" benefits in light of Somerset's rural nature.
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He said: "We are one of the top ten most rural authorities in the country. Nearly 50 per cent of our population live in rural settlements – nearly 290,000, that's about the size of a London borough.
"We've got an ageing population, and we are ageing much more rapidly than many authorities, which brings future challenges."
The council has seen some relief on its long-term financial pressures in the last few weeks, with the Department for Education (DfE) confirming it would write off up to 90 per cent of the council's dedicated schools grant (DSG) deficit - providing plans were put in plans to control future spending on children with special educational needs and disabilities (SEND).
Mr Heaphy said this relief came in the context of "rising demand" for SEND funding and the number of education, health and care plans (EHCPs), warning: "Don’t see this as free money: it’s not."
MHCLG confirmed on Monday (February 23) that the council would qualify for a third year of exceptional financial support through a 'capitalisation directive' - essentially allowing the council to fund day-to-day spending through borrowing or the sale of assets (something which is not normally permissible).
The council will have £30m of exceptional financial support for 2026/27, which will be "re-profiled" from the previous year (rather than additional support on top).
Of this, £25m will be used to cover the council's budget gap and £5m will be committed to its ongoing transformation programme in a bid to cut future costs.
Mr Heaphy said: "Our net ask of government has not gone up over that two-year period. Most of the transformation programme is now being funded through the flexible use of capital receipts.
"That's better for the optics of the authority in terms of what we're asking for."
This re-profiled funding comes with strings attached, with local government minister Alison McGovern MP indicating that she had "significant concerns" over the pace of the council's transformation programme, following concerns raised by official auditors.
She said: "It is my clear expectation that this council takes robust action to address these specific risks and issues, as part of their wider plans for financial recovery.
"Given these concerns, my department intends to move quickly with the external assurance review of this council, which will include close scrutiny of the issues above and the council’s plans to address them.
"This will also include consideration of if any further support or action is needed to ensure these issues are being properly addressed at local level."
Mr Heaphy warned that this would be the last year that exceptional financial support would be made available to the council - giving it 12 months to get its house in order before the 2027/28 budget, just before the local elections in May 2027.
He said: "It's critical the council now takes real ownership of its decision-making.
"We won’t be getting a fourth year of exceptional financial support. If it did, it would be with government intervention.
"We have to get control of our own lives, and that essentially means cutting costs one way or another - either by reducing services, or through transformation."
"The government is clearly saying: 'you’re on the naughty step, and you’ve got still get more work to do'. But the fact that they're minded to support us financially means they recognise that we're on the right trajectory and is giving us the chance to manage this ourselves.
"There is no reason why Somerset Council can’t get out of its troubles and find itself in a balanced position, delivering excellent services across the board."
Councillor Sarah Wakefield, portfolio holder for adult's services, housing and homeless, said there were "reasons to be careful, but also reasons to be cheerful" about the budget position.
She said: "We've been lucky enough to have properties and assets we can sell, and we are finding new ways of doing things.
"We haven’t done that enough, but we have found that if we get a partner in to help us, we can do things together that make a difference."
Deputy leader Liz Leyshon said it was likely that Somerset's council tax levels would remain lower than elsewhere in the south west for the next few years - with the government ruling out an above-referendum increase for 2026/27.
She said: "The rate for a Band D property in Somerset is unlikely to change now - we will remain lower than the national average and lower than our geographical neighbours, but the council tax base will continue to grow.
"We have been affected by the phosphates issue, and there has been a lot of housebuilding help up."
Around 12,000 homes across Somerset are currently being delayed by the phosphates crisis, with developers needing to secure additional mitigation to prevent further damage to the Somerset Levels and Moors.
Councillor Richard Wilkins, portfolio holder for transport and waste services, said the government need to take account of Somerset's rural nature when it came to the cost of road repairs and responses to major incidents, such as the recent flooding and damage caused by Storm Chandra.
He said: "Rurality brings extra pressure; the rural cost of major incidents is far greater than in urban areas.
"To say the government has left Somerset high and dry is both accurate and highly inappropriate."
The full council will set the annual budget at the Canalside conference centre in Bridgwater on Wednesday, March 4 at 11am.
