THERE is a paradox at the heart of local government in Somerset – with Somerset Council simultaneously having too little money and more money than it can spend at once.

Over the last few months and years, Somerset’s town centres have been replete with roadworks as publicly funded projects are put in place to make the local areas more presentable and accessible.

Millions of pounds have been invested into the Yeovil Refresh programme, the town deals in Bridgwater and Glastonbury, and the Firepool and Coal Orchard sites in Taunton, to name but a few.

And yet, the council is at the same time pleading poverty, securing permission from central government to raise council tax by more than is normally legal (without a referendum), selling off assets which it claims it no longer needs, and culling large numbers of its staff in the name of ‘transformation’.

To the layperson, these two scenarios seem utterly incompatible and paint a picture of an organisation in utter chaos – as though the council was taking the famous line from Matthew’s gospel, “do not let your left hand know what your right hand is doing”, a little too literally.

So, which is correct? Is the council rolling in money, a la Scrooge McDuck, or is it staring down the barrel with no change left down the back of the sofa?

Well, to paraphrase the ending of Crimson Tide, both are right – and also, both are wrong. Let me explain.

READ MORE: West Somerset reels at proposal to stop free car parking across towns and villages

READ MORE: Council faces bankruptcy five days before budget meeting if 'exceptional' support is rejected

The council technically sets two budgets, rather than one – a capital budget, and a revenue budget.

A capital budget comprises new infrastructure projects that the council intends to build or has to deliver under authority given to it by central government.

These projects include new schools (or expanding the ones we already have), new roads (or repairing our existing ones), new walking and cycling connections, improvements to leisure facilities (including the Octagon Theatre in Yeovil), and environmental defence schemes (such as stopping Blue Anchor falling into the sea).

The funding for the capital budget comes from a number of different sources – including grants from central government, contributions from housing developers, receipts from the sale of assets (including council houses), and some external borrowing from the Treasury or other councils (which is usually at a lower interest rate than commercial loans).

Many of the regeneration projects going on in Somerset’s town centres come from central government grants – which come with strict time-scales on when they must be spent by, and how they can be spent.

Take the Celebration Mile in Bridgwater town centre. This £9m improvement scheme forms part of the larger Bridgwater town deal, which is entirely funded through the government’s towns fund to the tune of £23.2m.

The funding within the town deal has to be spent on the agreed projects, which date back to Sedgemoor District Council – with some ambitions stretching back to the mid-2000s.

With the Celebration Mile, the funding has to be spent on walking and cycling improvements to enhance the town centre – it cannot just be used to fix potholes or cut business rates, or anything else along those lines.

And all of this funding has to be spent by March 2026 – or it will have to be handed back to the government.

The funding deadlines for these grant-led projects varies, with the Firepool improvements having to be under contract by April, while a £5m for upgrading the ‘concrete carriageway’ near Wellington is still sitting the council coffers largely untouched since July 2020.

Crucially, council tax does not directly fund capital projects like this – though some of it may be used to pay interest on the council’s long-term borrowing.

The revenue budget, by contrast, covers the day-to-day spending of the council on all the front-line services it delivers.

This includes all the contracts for street cleaning, toilet cleaning (where it’s not been devolved to town or parish councils), bin collections and other services we tend to take for granted.

It also pays for all the salaries of council staff – not just the chief executive and other high-ranking officers, but all the social workers, carers, traffic wardens, environmental health officers and other front-line services which it provides.

The revenue budget is where your council tax goes, with the council receiving the lion’s share of your monthly direct debit compared to your town or parish council, the police or the fire service.

Using the Celebration Mile as an example, the capital budget covers the cost of implementing this scheme – but if you park your car in the wrong place during construction and get a parking ticket, the fine you pay goes into the council’s revenue budget.

The trouble is, council tax on its own is not enough to cover the cost of all the council’s revenue services – the vast majority of which it has to deliver by law.

Council tax bills are calculated on the basis of property values set in 1991, with Band D representing the average property.

However, Somerset has a relatively low council tax base, with the majority of residents being in Band A or B properties, and therefore paying less than the average – even with the planned 7.5 per cent increase that could come into effect in April.

To make up the gap, the council normally only has two choices: make cuts or staff and services or dip into its reserves – and both are increasingly difficult to do in the face of austerity, which has seen local government grants from Whitehall pared to the bone since 2010.

And here’s the real kicker: the council cannot use capital funding to fund services in its revenue budget.

Capital and revenue spending are like oil and water – never the twain shall meet.

This makes sense – otherwise councils could simply borrow huge amounts of money from the Treasury every year, ostensibly to build new things, and end up in huge amounts of debt with an even huger ticking-off from the chancellor of the exchequer.

But in recent times, both the Treasury and the Ministry for Housing, Communities and Local Government (MHCLG) have sought to blur this distinction, turning council finances into an economic emulsion.

In both 2024 and 2025, the government is allowing Somerset Council (and many other local authorities across the UK) to have a ‘capitalisation direction’ -essentially meaning that it can use capital funding (i.e. from borrowing or the sale of assets) on day-to-day services.

To use Bridgwater as a further example, the council is selling off the grade one listed Cornhill building to help ensure that the town’s vulnerable adults get the care they need.

Of course, the sale of assets can only happen once – there will come a time (maybe quite soon) when there is nothing left of value that can be sold.

And as previously stated, none of the regeneration grants can be re-purposed into day-to-day services – meaning you can’t stop work on the Celebration Mile and used the remaining funding to fix potholes on the nearby streets.

But the only other option for the council is to declare effective bankruptcy, issuing what is known as a Section 114 notice.

Technically, a council cannot go bankrupt in the way that a private company does – but such a notice does put an immediate halt to all non-essential spending, including on the capital programme.

It also results in central government sending in commissioners, who will be able to sell off further assets, sack further staff and raise council tax by astronomical amounts – and they will do all this on your dime and without any real democratic input.

That is what council officers are trying so desperately to avoid – and that is why they are trying to drive forward all these capital projects while also rolling back the size of the council.

This is where the paradox comes from – and as the budget meeting in March will show, it’s a problem with no easy fix.