The Audit and Governance Committee of Shropshire Council met on Wednesday 15 July 2026, addressing a significant financial outturn report for 2025/26 which revealed an overspend of nearly £50 million. The committee also approved the draft Statement of Accounts for 2025/26 and noted the Annual Treasury Report for the same period.

Financial Outturn Report 2025/26

The committee received a detailed review of Shropshire Council's financial outturn for the 2025/26 financial year, presented by the Section 151 Officer. The report highlighted a significant adverse variation from the General Fund budget, amounting to £49.428 million. This overspend was primarily attributed to ambitious savings targets set within the approved Council Budget in February 2025 and a failure to recognise embedded demand pressures within social care services, particularly in adult social care operations and children and young people's services.

The report indicated that the overspend was supported by Exceptional Financial Support (EFS) from the government, totalling £61.791 million for 2025/26, which was £9.609 million less than originally requested. This EFS is necessary to retain a minimum level of reserves, fill the structural deficit, and write back the capital costs of the aborted North West Relief Road project. Reserves and balances have been significantly drawn down, leaving only £5 million in the General Fund Balance at the end of March 2026, significantly below the target of £35 million. The Medium Term Financial Plan (MTFP) outlines a strategy to restore the general fund balance over three to four years, which will necessitate borrowing and incur associated debt financing costs. Earmarked reserves for financial risks were also noted as being low.

Members raised concerns about the Council's low reserves and the difficulty of rebuilding them amidst ongoing financial pressures. The Section 151 Officer reiterated the plan to recover the general fund balance, acknowledging the need for borrowing and associated costs. The report also noted a £28.029 million overspend for the Dedicated Schools Grant (DSG), resulting in a cumulative deficit of £45.655 million, which is being managed through a Statutory Override agreed nationally by the government.

The committee resolved to note the contents of the report.

Annual Treasury Report 2025/26

The committee received the Annual Treasury Report for 2025/26, which presented the outturn of treasury activities. It confirmed that all Prudential and Treasury indicators were met in line with the Treasury strategy agreed by Full Council in February. New borrowing of £100 million was undertaken, with some borrowing maturing during the year, resulting in a net increase of £39.5 million. This included £61.8 million of borrowing specifically for exceptional financial support. Investment activity was limited due to restricted cash balances, with daily investments maintained at around £20 million and investment income of £2.4 million secured. The report highlighted the critical role of EFS borrowing in the 2025/26 position.

The committee resolved to approve the actual 2025/26 prudential and treasury indicators, note the annual treasury management report for 2025/26, and note the inclusion of EFS borrowing in the 2025/26 position.

Approval of the Council's Draft Statement of Accounts 2025/26

The committee received the draft Statement of Accounts for the financial year 2025-2026. The importance of the accounts in demonstrating robust governance was emphasised, with recognition given to the timely production of the accounts by the statutory deadline, despite challenging circumstances including new requirements such as exceptional financial support and the accounting treatment for the North West Relief Road write-off. The report outlined the Council's financial activity for the year, provided a summary of the draft statement's format, and detailed changes to accounting policies, primarily related to property, plant and equipment valuations.

During discussion, questions were raised regarding the sensitivity of property valuations to optimism bias. It was clarified that valuations are conducted by external qualified valuers, independent of council influence, and are based on asset categories and market evidence. The process includes analytical comparisons and challenges from both finance and estates teams, but ultimately relies on the professional judgement and certification of the valuers.

The committee resolved to approve the draft Statement of Accounts and to note the changes detailed to the accounting policies used within the draft statement for 2025/26.

Other Business

The committee also noted the date and time of the next meeting, scheduled for Friday 25 September 2026 at 1:30 pm. Items 11 and 12 of the agenda, concerning the exclusion of press and public and exempt minutes, were also resolved.