Auditors have found “significant weaknesses” in Plymouth City Council’s financial arrangements. Warning that it may have to cut some discretionary services so it doesn’t run out of money.

Grant Thornton said that the council’s reliance on reserves to balance the budget over several years was “not sustainable” and it needed to act now to avoid going to the government for additional financial support.

Plymouth is facing the same challenges as councils across the country with rising costs of adult and children’s social care, homelessness and provision for children with special educational needs and disabilities (SEND).

Eight English authorities have already issued Section 114 notices, effectively declaring them bankrupt, since 2018, and the Local Government Association has warned that many more are at risk.

In their interim external auditor’s annual report presented to the council’s audit and governance committee on Tuesday, Grant Thornton said a pipeline of savings across multiple years needs to be identified to address the budget gaps that are predicted to rise to £30 million over the next four years.

The 2024/25 budget was supported by more than £9 million of reserves and £4.3 million this financial year.

“It is essential that the council mitigates the forecast overspend in 2025/26 to prevent further unsustainable and unplanned drawdown of reserves,” said the auditors.

Among the authority’s challenges are the SEND deficit, which is set to reach £53.7 million by the end of the financial year and could increase to over £200 million by 2028.

At the present time, this figure is kept off the council balance sheet under a temporary accounting rule, but that could change after March 2028.

The council is pinning its hopes on a fairer funding review, SEND reforms and a multi-year financial settlement from the government.

It was recognised that the council was embarking on a “transformation programme” relying less on short-term fixes and finding long-term solutions, such as providing its own children’s homes.

Around 80 per cent of the council’s budget is spent on adult and children’s social care, and in July the council reported that 205 children and young people were in independent specialist placements with an average cost of £68,000 per year, totalling around £14 million. 

Barrie Morris from Grant Thornton suggested the council look at the discretionary services it offered, which are the ones it is not obliged to provide, and ask itself if it could afford to continue with these.

“That is the challenge,” he said.

Independent member of the committee, Annette Benny, said the report was “a warning across our bows”.

“We need to collectively sit up and take notice. We have had a warning previously and I am getting rumblings about financial sustainability and believe there is quite a risk here.”

She said there did not appear to be longevity around plans or a pipeline of things in hand. 

“I know every public organisation is facing these challenges but I did feel a sense of disquiet around this,” she said. As the audit and governance committee, we should be taking absolute notice of this paper and reading the writing on the wall.

“We have a good opportunity if we can get everything aligned within the authority to deliver something great, if not this could very quickly unravel and we could find ourselves with a bankrupt organisation. I feel very uncomfortable reading this.”

Mr Morris said: “Your observations are spot on. It is a shot across the bows. We are not underplaying how much of a challenge this is. It is about re-embedding those transformation opportunities and savings plans.”

He said it was “little comfort” to say that there were many other authorities in a worse position than Plymouth and many were using reserves which were one-off funds and once they were gone, they were gone.

Service director for finance Ian Trisk-Grove said the report was six months out of date and the council’s recently published draft medium-term financial strategy set out an “increasing pace and approach” about how the council delivered services with a real focus on children’s placements.

Plymouth City Council is looking to appoint a new chief finance officer after Mr Trisk-Grove, who has been in post since March, leaves in December.

Plymouth was at the top of the list of Devon councils with the most debt last year – £702 million – and that is predicted to grow to £1 billion by 2028.