Cheshire East could be facing effective bankruptcy unless it acts soon after the council's low reserves, historic overspending, challenging savings targets and inadequate Ofsted rating were highlighted in an external review.

The corporate peer challenge, conducted by senior councillors and officers from other authorities, was critical of many aspects of Cheshire East's operation.

The experts spoke to approximately 165 people including a mix of councillors, officers and residents in March and reviewed key documents provided by the council.

The report, published yesterday, states: "The peer team are seriously concerned about the immediate financial stability and sustainability of the organisation.

"In 2023/24 the council have used £11m of their reserves to set a balanced budget and has a savings requirement of £20m for 2024/25.

"If these savings are delivered, it will still only leave the organisation with £2.1m in reserve by the end of this financial year.

"In this context of low reserves, historic departmental overspends, and a lack of organisational confidence regarding the delivery of existing saving plans, if there is not significant change at pace, it is very likely that the council will be required to issue a section 114 notice in the near future."

It adds the financial challenges are compounded by the overspend on the budget for children's special needs.

This was nearly £80m at the end of 2023/4.

The report raises concerns that some staff and members are 'seemingly comfortable with the current position'.

Labour/Independent-led Cheshire East was also criticised for working in silos.

One of the main recommendations to come out of the report was the council needs to urgently review its decision-making framework 'to avoid siloed working across committees'.

The council was also slated for its too lengthy and overly complicated committee reports which made scrutiny difficult.

The scrutiny process itself also came under the microscope.

The review said the council would benefit from increased scrutiny of decisions through its existing governance structures.

The report referred to Cheshire East's 2023 satisfaction levels 'which illustrate it was performing below national averages in a number of key areas' including:

• 24 per cent of residents very/fairly satisfied with how the council run things (60 per cent national average);
• 20 per cent of residents very/fairly satisfied with value for money (42 per cent national average);
• 26 per cent of residents felt the council acted to address concerns of residents (52 per cent national average);
• 33 per cent of residents feeling informed about the council and their activities (55 per cent national average).

It said: "These results illustrate the need for the council to develop active two-way models of communication and engagement with residents, ensuring that this work is more focused, visible, and proactive.

"Integral to this new approach will be the ability to move beyond a broadcast communications model which is built around press releases and consultations towards a more informed model of co-design and engagement."

The high turnover of staff, especially at senior level, and the number of vacancies was highlighted as an issue affecting the council's performance.

But the report did praise staff saying: "Despite instability and capacity challenges in senior roles, the council has continued to deliver services to the benefit of local residents, often through significant contribution and commitment of officers and frontline staff."

The review outlined a number of recommendations including recruiting senior leaders and developing a customer focused transformation plan to support longer-term improvement.

The report adds: "The council is demonstrating a willingness to engage in external challenge and learning.

"They have undertaken a range of 'diagnostic' exercises, including the transformation reviews, decision making accountability review, and inviting this corporate peer challenge.

"Beyond commissioning these reviews, the council needs to ensure that the outcomes from them are implemented in a coordinated and timely way."

The peer review can be read in full here.

Cheshire East's Labour group has issued this response to corporate peer challenge report

Those who have refused to address the financial challenges facing Cheshire East Council have been rebuked by the LGA Peer Challenge Report.

All councils across the country are under financial pressure.

The challenges are more immediate for Cheshire East Council because of the low reserves.

The general reserve was £22m when the council was formed in 2009.

That had fallen to £10m in 2019 when the Conservatives lost control of the council. Under the new Labour/Independent administration the reserves increased to £14m at March 31, 2023, but this is still low compared to the annual net expenditure of £372m.

To compare with some other councils, Surrey County Council's general reserve at March 31, 2023, was £579m.

Closer to home, CWAC had general reserves of £25m in 2019 compared to £10m for CEC – 2.5 times as much.

At March 31, 2023, CWAC had reserves of £27m compared to £14m for CEC – still nearly twice as much and CEC is a bigger council than CWAC.

This means that Cheshire East can't use reserves to cover large deficits as councils such as Hampshire have done.

This has left the Labour-led administration with no choice but to raise money in other ways and make cuts to services.

Despite the financial pressures being clear, the local Conservatives opposed fund-raising measures such as the garden waste charge which is now raising more than £4m a year.

The LGA Peer Review opens by clearly stating the perils of ignoring the financial warnings and the need to secure financial stability.

The Labour-led administration has already taken many difficult decisions to raise money through garden waste charges and car parking charges, as well as reviewing services including household waste recycling centres, whilst protecting library services and leisure centres.

More work is needed and a transformation programme was launched earlier this year to review ways of working and save £100m over the next four years. The Labour-led administration is facing up to the financial challenges caused by a decade of Tory mismanagement and is taking the actions necessary to transform Cheshire East Council.

Cllr Geoff Smith, ward councillor for Nantwich South and Stapeley, said, "All councils across the country are under financial pressure.

"Whilst Labour-led Cheshire East Council has a plan to address these challenges the Conservatives refuse to take the difficult decisions necessary to secure financial stability.