The council’s budget gap has narrowed – but fears remain over its vulnerability to a financial shock.

Barnet Council’s budget gap is currently just over £2 million after drawing on reserves – down from £7.9 million in June.

The local authority ‘s coffers will be swelled by the £4.1 million compensation deal recently agreed with outsourcing firm Capita.

A cash injection by central government to ease pressure on adult social care has also helped shore up the council’s position.

But at a meeting of the financial performance and contracts committee yesterday (Monday, December 17) Labour councillors raised concerns the situation could be more fragile than the figures suggest.

Cllr Kathy Levine, Labour member for Brunswick Park, asked if plans were in place to cope with a recession or a big hit to the retail sector that would cut the council’s income from business rates.

She said: “I am worried that our reserves are very low and there is a danger if there is a big shock to the system.”

Council officers gave assurances that they made contingency plans to ensure the council’s finances were sustainable as part of their reports to the committee.

Cllr Peter Zinkin, chair of the committee and Conservative member for Childs Hill, pointed out that the council was under a legal obligation to balance its budget.

He said the local authority could cut or stop spending on its capital programme – investment in long-term infrastructure projects – in the event of a drastic economic slowdown.

But Cllr Levine said: “We have already got £4 million from the reserves built into the budget and we have overspent by nearly £6 million, so we look as though we have already spent £10 million more than we brought in this year.

“It is a bit redolent of last year, when the projected figure from the deficit was quite low right up until the end of the year and then suddenly we ended up with a £21 million deficit.

“This is making me feel extremely nervous.

“I do think there are a lot of weaknesses there, potentially in some of the contracts and the way we have been doing things that have led us to this.”

Cllr Zinkin admitted the rate of expenditure was “higher than we would like” but criticised Cllr Levine for a “throwaway comment” about weaknesses in contracts, which he claimed was a separate issue.

During the meeting, councillors also discussed a report into the effects of a possible collapse of outsourcing giant Capita on the council’s finances.

The report came in response to a request by Labour leader Cllr Barry Rawlings after government contractor Carillion went into liquidation in January.

It shows that while the council could step in to take control of some services, some areas – such as IT, which is provided from outside the borough – would be harder for it to deal with.

Cllr Levine asked if the council would have enough reserves to cope with additional costs associated with a Capita collapse.

Paul Clarke, the council’s head of finance, said the council was maintaining a level of reserves “we believe would be sufficient”.

But he added: “If the moment came along and it cost us £20 million, clearly that would put us in a very uncomfortable position.”