Nottingham City Council was the latest local authority to effectively declare bankruptcy on November 29, 2023.
The council filed a Section 114 notice in response to a predicted £23 million in-year budget overspend.
“At the halfway point of the year, the council is forecasting a gross General Fund pressure of circa £57 million which is partly being mitigated from one-off in-year management and corrective actions," the council said.
The corrective actions referred to include the use of previously approved reserves. These are expected to reduce the “net forecasted pressure” for the year to around the aforementioned £23 million overspend.
“This situation has led the council’s corporate director for finance and resources and Section 151 officer, Ross Brown, to issue a Section 114(3) report to all councillors today," the council's statement continued.
“The council is not ‘bankrupt’ or insolvent, and has sufficient financial resources to meet all of its current obligations, to continue to pay staff, suppliers and grant recipients in this year.”
Why is Nottingham City Council effectively bankrupt?
Nottingham City Council blames rising demand for its services at the same time as decreased funding from the Government for its financial issues.
Nottingham is not alone in its financial struggles, Indeed, they come only a few months after a similar situation unfolded in Birmingham.
Nottingham is the seventh council to issue a Section 114 in the last five years. Here's a look at which other councils are in similar circumstances.
UK councils that have gone bankrupt
Hackney
Hackney Council, in east London, was the first local council to issue an S114 notice in 2000. It would be the only council for the next 18 years to admit to a financial crisis and file an S114.
Northamptonshire
Tory-run Northamptonshire declared effective bankruptcy in February 2018 and then again in July. The council was able to dodge a third insolvency later that year after it was allowed to use funds from selling its offices to avoid further financial setbacks.
Slough
Labour-run Slough was looking at a £100 million black hole in its budget when it was forced to issue an S114 in 2021. At the time, the financial challenges were attributed to poor management.
Communities secretary Robert Jenrick said at the time: “Slough Council’s financial position and clear mismanagement is deeply concerning and completely unacceptable — local people deserve better than this from their local council leaders.”
Thurrock
Tory-led Thurrock declared bankruptcy in 2022 after finding itself in a perilous financial position. The council had racked up a debt of £469 million.
Croydon
In 2022, Croydon declared itself bankrupt for a third time with debts soaring to £130 million. A spokesperson for the Government said: “We have appointed an independent panel to address the significant governance and financial failings in Croydon and will continue to monitor progress to ensure the council delivers for its residents.”
Woking
In June 2023, Woking issued an S114 as it faced a deficit of £1.2 billion. Cllr Ann-Marie Barker, the leader of Woking Borough Council, said at the time: “My administration has been very clear about the huge financial challenges facing the council due to the legacy of inherited debt.
“The notice makes clear the true scale of these challenges which are so significant that the Council cannot simply deal with them on its own. We must work in partnership with the whole of the government and its agencies to support us in delivering a robust Improvement and recovery plan.
Birmingham
According to the BBC in October 2023, Birmingham City Council was in financial crisis on multiple fronts.
Equal pay claims of up to £760m were among the bills it cannot afford, the BBC reported.
Nottingham
The Labour-run council said it has “sufficient financial resources” to meet current obligations to pay staff and suppliers, and denied it was “‘bankrupt’ or insolvent”.
What does it mean if a council goes bankrupt?
Councils can’t officially go bankrupt but they can announce that they are unable to make spending commitments.
This is formally announced by filing a Section 114 notice, after which the council has 21 days to meet and discuss what to do next.
According to the House of Commons library, some councils will then decide to make an amended budget that reduces spending on services.
Another option is that councils can seek a “capitalisation direction” from the Government, where councils are allowed to use capital funds to top up service spending.
What is a Section 114 notice?
Section 114 notices are reports issued by the chief financial officer of a British public body to prevent certain types of expenditure.
In the case of effective bankruptcy, the notice makes it clear that a government authority cannot spend any further outgoings without approval from the chief financial officer.
Such notices take their name from Section 114 of the Local Government Finance Act 1988
Which councils are at risk of going bankrupt?
Over the last few years, there’s been a growing number of local councils declaring bankruptcy. Unfortunately, this trend doesn’t show any signs of letting up.
An alarming 30 per cent of UK councils were considering an S114, with many authorities struggling to make dwindling budgets last.
Sir Stephen Houghton, the Labour leader of Barnsley Council and Sigoma chair, was quoted as saying: “The government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last 12 months.
“At the same time as inflationary pressure, councils are facing increasing demand for services, particularly in the care sector.
“Pay increases are putting substantial pressure on budgets, and so the government must ensure that local authorities have the additional funding they need to fully fund these pay increases or risk impacting future service delivery.
“The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.”
