A “bankrupt” Tory authority used a £9m fund meant for school improvements in a failed attempt to fill a growing financial black hole, it can be revealed.
Cash-strapped Northamptonshire County Council spent the money to “mitigate” losses in an account used for general everyday spending in 2016, HuffPost UK has found.
The funding was meant to be set aside to “fund future educational improvements within the county” as part of a so-called Section 106 (S106) obligation placed on property firms to ensure new developments benefit the whole community.
Cash from S106 obligations is often earmarked for new schools, libraries, road, as well as pavements, street furniture and playgrounds.
But an independent review into Northamptonshire’s finances by government inspector Max Caller revealed the “one-off” payment of £9m from the S106 budget was transferred to the council’s general revenue account during the year 2016-17.
Auditors KPMG confirmed in an August 2017 report that the £9m came from funds meant for education improvements and that it was intended to be replaced “through council borrowing”.
County council officials this week declined to elaborate or provide further details.
Northants schools were the subject of a damning open letter from an Ofsted chief in 2016, who described overall education in the county as “poor”.
The council has since burned through the S106 cash, with its replacement thrown into doubt after the council was effectively deemed “bankrupt” last month and as plans to split the authority into two gain support.
Numerous council-run services are being slashed by up to £40m this year as it battles to stay financially afloat.
Caller also found at least £4.5m of S106 money was estimated to be used in a similar way during the 2017-18 financial year.
The review states that no payments from S106 money into the revenue account were made in the three years before 2016, though the council said it first raised concerns over gaps in its budget in 2014.
Local authority revenue accounts are used for day-to-day spending, such as providing care to vulnerable adults, and are separate to capital accounts which fund big expenses, such as new schools and roads.
In his review, Caller suggested creative accounting methods “masked” the true extent of Northamptonshire’s use of “one-off” payments to make up losses.
And he said there was evidence that backbench councillors were too afraid to ask questions during financial audit meetings for fear of being “replaced”.
Planning experts have now raised concerns over S106 payments being used to fund normal outgoings without developers and the public being fully aware.
Prof. Peter Rees, former chief planner for the City of London, said: “If a local authority were to use Section 106 money to support everyday spending without it being in agreement with a developer, it would be incorrect. It could well be a misuse of those funds.
“It was never meant to be money that would be put into a council budget, but rather it was intended to ensure that whole communities benefited from a development.”
The revelations also suggest the crisis-hit council risks contradicting its own policy on the use of developer cash.
It could well be a misuse of those funds.
Prof. Peter Rees, former City of London chief planner
Northamptonshire Council’s latest annual review states that S106 funding should “contribute to supporting the cost of investment in infrastructure to ensure future provision of key service[s] on which the population relies.”
The council held a S106 fund worth a total of £30.1m on 1st April last year, HuffPost found through a Freedom of Information request.
It received over £18m in S106 cash in 2016-17, according to public records, with spent £5m on “education” last year, including support for the construction of Radstone Fields Primary School near Brackley.
The legal basis for the use of S106 money for everyday spending, even with a pledge to replace it later on, is uncertain.
Leeds City Council was forced to defend the tactic last year when The Yorkshire Post revealed that multiple councils were holding on to more than £20m of S106 money, failing to spend it on community projects, and then using it to boost day-to-day budgets.
Northamptonshire County Council wouldn’t confirm which property developers, or which developments, were linked to the S106 cash used to “mitigate” losses.
The authority, led by a Conservative majority, has been plunged into uncertainty amid mounting pressure over huge gaps in its budget.
Officials have warned adult care services risk being “unsafe” amid the financial turmoil while campaigners slam a “firesale” of council assets, including 21 libraries and its brand-new £53m central Northampton HQ.
The council became the first in nearly two decades to issue an official notice to stop all new spending last month.
It now faces a central government intervention as Communities and Local Government Secretary Sajid Javid prepares to announce commissioners will be sent in to the authority.
Javid previously hinted that the move, likened to a school entering “special measures” whereby all decisions and spending are scrutinised, would happen before the end of April.
Javid is expected to confirm his final decision this week.
Meanwhile Max Caller’s proposal to close the council entirely and replace it with two brand-new unitary authorities has reportedly gained support among councillors.
Northamptonshire County Council told HuffPost in a statement: “The council has financial governance in its delivery of Section 106 obligations to ensure the agreed investment for infrastructure is made in full and in a timely basis.”
The authority refused to answer further questions over its use of S106 cash.