The council is forecast to be left with just over £40m in its usable reserves in 2027/28 — down from £125.8m in 2023/24 — according to external auditors Grant Thornton. Council leader Mike Bell has insisted the council is “well run” but said: “We are facing the most challenging financial situation in our history.”

Grant Thornton’s external auditor’s report, which goes before the council’s audit committee on Thursday November 27, stated: “The council’s financial strategy is increasingly reliant on useable reserves, with £12.8m drawn from earmarked reserves in 2024/25, including nearly £6m to manage pressures in children’s services. The total useable reserve base has declined from £125.8m (2023/24) to £116.3m (2024/25) and is forecast to fall to just over £40m by 2027/28, significantly reducing financial headroom.”

It added that North Somerset Council’s decision to include a planned use of £9.1m from reserves when it set its budget for the 2025/26 financial year in February was “unsustainable.” Some councillors criticised the decision at the time but Mr Bell insisted: “We have literally got to a situation where this is the only way to achieve a balanced budget.”

A council’s reserves are sometimes called its “rainy day fund” and act as a backstop for in-year financial pressures. Councils are required to run a balanced budget and, at the end of the financial year, overspends or underspends are typically settled from or credited to the council’s reserves.

Reserves are sometimes also used to cover unbudgeted in-year spending. In 2024, North Somerset Council took £153k out of its reserves to put towards the unbudgeted cost of removing the “wiggly lines” on Clevedon seafront.

Grant Thornton’s report said: “Continued reliance on one-off measures, volatile demand in high-cost services, and declining reserves undermine financial resilience. However, this risk is compounded by uncertainty around the government’s fair funding review, with no confirmed decisions on future funding levels or flexibilities, making it harder for councils to plan effectively.”

The auditors rated the council “red” for its plans to bridge its funding gaps and identify achievable savings, meaning there were “significant weaknesses” at the council. They recommended all council departments develop deliverable savings plans with a focus on recurrent savings.

Asked about the forecast two thirds reduction in the council’s reserves in a period of just four years, Mr Bell said: “We are facing the most challenging financial situation in our history with rising demand and costs for our services at a time when government funding is predicted to significantly reduce.

“Children’s and adults social care services now account for over 60% of our budget, which includes placing looked after children in residential placements and foster care, supporting young people with special educational deeds and disabilities (SEND), supported housing for vulnerable adults and looking after our most elderly either at home or in care placements.

“Despite making difficult decisions, we are still facing a budget gap of more than £48m over the next three years and we’re predicting the government’s funding formula will mean we’ll be a further £17m worse off — which equates to 20% of our revenue budget.

“We are a well-run council with a good track record of managing our finances and so are doing all that we can, meaning that no stone is being left unturned as we look to set a balanced budget. This includes developing a council-wide transformation programme, reviewing all council services, speaking to the government about the impact of its financial reforms and looking at our reserves which remain a key part of our financial strategy to not only balance the revenue budget, but also to deliver planned capital investments across North Somerset.”

North Somerset Council is currently speaking to the government about “exceptional financial support.” This could mean asking the government for permission to increase council tax by more than the 5% it is usually limited to without a local referendum. It could also mean permission to borrow money to fund longer term savings for the council.