Dudley Council’s perilous financial situation has been dealt another blow after auditors stepped in to force a public debate on cuts.

External auditors, Grant Thornton say the council’s finances are weak and that the authority is in danger of effectively going bankrupt.

The auditors have now made statutory recommendations under the Local Audit and Accountability Act forcing the council to publicly discuss what it is doing to balance the books.

Grant Thornton believes the authority needs to find at least another £2.5m in savings but council leader, Cllr Patrick Harley, believes his team is already on the case. Cllr Harley said:

“The auditor has issued some advice saying he would like to see this additional saving. Cabinet had already identified more than this number so in essence the notice has come too late as we are already working on this.

"These additional savings are from decisions taken in October and through efficiencies identified since.”

The council is looking to slash £15.6m from its spending in the next financial year but according to its own forecasts will still need to take £6m out of general reserves to balance the books and avoid having to issue a s114 declaration – effectively saying it is bankrupt. Cllr Shaukat Ali, Labour’s shadow cabinet member for finance, said:

“In the face of financial incompetence and mismanagement over the years by the Tory administration, the perilous state of the council’s finances was inevitable. Make no mistake, no one else but the Tory administration is to blame for this.”

In a report published ahead of a meeting of the council’s cabinet on February 15, director of finance Iain Newman says if the council does not put money back into reserves and continues to take funds out at the same rate, its finances will become unsustainable. Cllr Harley added:

“The ground work has already been done to produce a legal budget and more importantly one that doesn’t rely on using ring fenced reserves. Therefore there will not be a s114 declaration.

“The senior officer team has been tasked with bringing proposals to cabinet that produce a new Total Operating Model. I believe this will allow Dudley MBC to set a legal budget in the next few years and ultimately rebuild our general reserves.”

The council is currently waiting to hear if the government will allow it to borrow up to £10m to prop up next year’s spending.

Usually, councils are not allowed to borrow cash to pay day-to-day bills and bending the rules may come at a price – with demands for more cuts in spending.

Cabinet members will be told another option could be to hike council tax. Dudley’s council tax charge is around ten percent lower than the average metropolitan authority, a situation which cuts spending power by £15.7m per year.

Councils need to get approval from the government for rises above five percent without a local referendum.

Elected councillors would have the final say on a rise above five percent but Dudley has already applied for permission to set a bigger increase without a referendum in 2025.

Bankrupt Birmingham Council has just been given the go-ahead by the government for a ten percent council tax increase this year.