Nottingham City Council is facing questions about how it will manage to pay back £15.8m of housing cash it spent ‘inappropriately’.
Cllr Andrew Rule, Leader of the council’s opposition Conservative Group, has questioned how the authority will manage to cover the error, which was revealed last week.
Funds to the tune of £15.86m from the council’s Housing Revenue Account – which should have been spent on things such as housing repairs – were incorrectly credited to the ‘General Fund’ for all council services.
The Housing Revenue Account is strictly ring-fenced for transactions related to council housing landlord functions and cannot be used for other purposes.
The sum involved has accumulated since 2014/15.
Cllr David Mellen (Lab), leader of Nottingham City Council, said a full investigation will try to establish how the incorrect use of funds had continued for so long without being flagged.
He said he was “mystified” as how the problem could have been allowed to occur and said he had only been made aware of the situation recently.
Cllr Kevin Clarke, leader of the opposition Independent Group at Nottingham City Council described the news as “outrageous” and said Nottingham’s council tenants had suffered as a result.
The money is now to be put back into the Housing Revenue Account by using the council’s General Fund reserve.
The General Fund reserve is emergency cash put aside by the council to cover “unanticipated / unbudgeted necessary costs” and is informed by the possible “financial risks in a single budget year”.
An Executive Board paper, published in November, shows the General Fund balance as at April 1, 2021, was £12.6m.
This is less than the £15.8m it needs to pay back.
The lack of money in the General Reserve account was highlighted by Cllr Rule at an overview and scrutiny committee on Wednesday, December 8.
He said: “If we have only got £12.6m in there how are we going to plug that gap and how worried are you that will affect our overall financial resilience going forward?”
Cllr Sam Webster (Lab), porfolio holder for finance, responded by saying the authority continues to put additional cash into the general fund but an investigation would need to take place to look into this.
The meeting also heard there are also £167m of earmarked reserves – however, there is an air of caution on using this cash, as earmarked reserves are set aside for specific purposes, with specific grant conditions attached to them which ensures that they are spent on services such as schools.
Last week, Cllr Mellen said he had been informed there is enough money in the reserve account to pay it back.
However, the council has declined to answer a series of follow-up questions.
These included how much money would be left in the reserve account as a result of replacing the £15.8m.
Other questions posed and also so far unanswered by the council include:
- Will the £15.8m be replaced in stages or one lump sum – and over what time period?
- What will this mean for the council now you have limited reserves – what sorts of things may it not be able to do?
- Is the council close to bankruptcy?
- Will more savings need to be made as a result of this?
The problem of the wrongly-spent money has been revealed while the council is already being closely monitored by a Government-appointed Improvement and Assurance board over how it manages its finances.
The board is watching the council to ensure it can balance its books over the next four years following serious financial problems, including the loss of an anticipated £38m following the collapse of its energy company, Robin Hood Energy, which went into administration in January 2020.
If the board decides the council cannot sort out its financial situation then Government commissioners could be called in to run the Labour-led authority in the future.
Speaking after the meeting, Cllr Rule said: “The leader [Cllr Mellen] is suggesting that the council can cover repayment of these illegitimate payments from its general fund reserves when in fact there is only circa £12 million in the reserves meaning that there is a circa £3 million shortfall.”
Cllr Rule said he was also concerned about the financial implications if the council decided to take some of the money out of earmarked reserves.
A spokeswoman for the Government’s deparment of Levelling up, Housing and Communties, which is overseeing the council’s financial situation, said: “We are aware of concerns around Nottingham City Council’s Housing Revenue Account and will consider the implications carefully.
“We have already put in place the Nottingham City Council Improvement and Assurance Board after significant financial and governance failings at the Council – and the Board are supporting the Council as they work through this issue. We will also be writing to the Chair of the Board, Sir Tony Redmond, to seek assurances from him on the Council’s response.
“Ministers will continue to review their options in relation to Nottingham City Council, including considering whether it is appropriate to use their powers to ensure the Council is complying with the Best Value Duty.”