The cost of wrongful allocation of money meant for Nottingham City Council’s housing and its tenants now totals up to £51m, the Labour-run authority says.
Towards the end of 2021 the council was issued a legal notice after an investigation revealed up to £16m of Housing Revenue Account (HRA) funds were unlawfully spent.
The investigation came while the council was under the watch of a Government-appointed improvement board, and the findings almost prompted the appointment of Government commissioners to take control of the authority.
Ringfenced funds had been transferred to the council’s general fund, which finances other services, over a series of years.
Taking into account inflation, the total cost of the HRA repayments now totals £49m to £51m, an increase of around £11m on the previous figure of £40m.
The figure was highlighted during a scrutiny committee meeting at Loxley House on January 4, 2023, where the budget and medium-term financial plan was being discussed.
The council faces a £32m black hole in the 2023/24 financial year and proposed savings of £29m have been detailed, which include a council tax hike by five per cent, the axing of 110 jobs and a shake-up of adult social care.
A number of factors have led to what the council describes as “one of the most difficult budgets in a number of years”, including soaring energy bills and inflation.
A significant portion of the funds must now be paid back using council reserves.
Andrew Rule (Con) asked the committee: “How much pressure on this do you think the reserves have from the failure of Robin Hood Energy and the repayment of unlawful HRA spending?”
Clive Heaphy, the outgoing director of finance, said: “The amount set aside for Robin Hood Energy is already well-publicised, at £38m, so that is one that we have set aside.
“The total cost of the HRA repayments is going to be in the order of £50m, £49 to £51m, that kind of order.
“Some of that is coming directly back from Nottingham City Homes and some from our reserves, and to date we have repaid around £27m from our reserves back into the HRA with another £4m to go.
“So the direct impact on the reserves of those two things will be £69m combined.
“You are absolutely right undoubtedly if those things weren’t there then we would not have had the same pressure on the reserves, but equally arguably we would not have built those reserves in the first place.”
Overspends in certain departments due to a series of “shocks” in the past year mean the council must take money from reserves.
These shocks include additional energy costs of £3.6m and extra costs for homelessness services.
The authority also argued that, while the spending power as a result of a recently announced financial settlement from the Government has increased by 9.9 per cent, it remains down on previous years.
Any funds taken from reserves must then be paid back.
“If we cannot close the overspend it has to be met by reserves and those reserves are most likely going to have to be paid back at some point in time,” Mr Heaphy added.
“So we are just shifting the problem further down the line. But we have to balance the budget.”
A public consultation is currently taking place on the proposed budget savings, roughly £10m of the £29m total, before it is finally approved by March this year.
The council must now find ways of finding savings to bridge the remaining £3m gap and these proposals are expected to be announced in due course.