A West Yorkshire council said it was close to going bust unless a £47m funding gap could be closed, as a growing number of local authorities warned that they were almost running out of funds.
Kirklees council, which counts Huddersfield as its main town, said it could face a section 114 notice – signalling that it could not balance its budget – in the 2024-25 financial year if the authority did not deliver required savings and minimise its expenditure this financial year.
It is understood several authorities are on the brink of issuing section 114 notices this year if the government does not release additional funding to stabilise the sector.
Hastings council, which has spent millions of pounds coping with a rise in demand for temporary accommodation, also signalled this month that it could be forced to issue a section 114 notice.
Last week, Derby city council’s leader, Baggy Shanker, described its finances as “absolutely dire”, and its chief executive has called for urgent help.
A report by Kirklees council officers outlining the precarious financial position, due to be presented to councillors on 15 August, has warned that “the seriousness of the council’s financial position cannot be understated”.
The report says the council has saved more than £250m since austerity measures were introduced in 2011 by the former chancellor George Osborne, and that it has continued to face “funding reductions and increasing demand pressures far greater than more affluent areas with lower levels of relative need”.
It added that the rising demand for services and cost of living crisis had also contributed to the council’s financial problems.
Kirklees council is the 13th-biggest local authority in the UK in terms of population, with 430,000 people living in the area, according to the most recent census.
The councillor Paul Davies, the cabinet member for corporate services at Kirklees council, said: “Even though inflation has slowed marginally, prices are still increasing at a rate we haven’t seen for decades.
“Alongside additional demand for some of our most vital services and our need to protect our most vulnerable residents given the cost-of-living impact, we need to take action now to balance the budget.”
This year Woking council issued a section 114 notice after a risky investment strategy that left it with a £1.2bn deficit. The small local authority, in Surrey, had bought a slew of commercial assets, such as skyscrapers and hotels, but became overwhelmed by the sheer scale of its debt, which was forecast to hit £2.6bn.
Woking’s effective bankruptcy followed Thurrock, Croydon and Slough, where money was ploughed into seemingly lucrative commercial deals to try to plug gaping holes in budgets caused by central government funding policies.
A slew of other councils, including Kent, Hastings, Southampton, Guildford and Bradford, have warned they are also facing section 114 notices. After 13 years of slashed budgets and some poor commercial decisions, councils have more recently faced challenges with skyrocketing inflation, which has piled extra costs on local authorities to provide basic services.
In July, the Local Government Association, the membership body for local authorities, warned that councils were at risk of insolvency in the coming months due a £3bn funding black hole caused by inflationary pressures and an increase in the use of services.
The difficult financial position local authorities face has prompted them to continue cutting services this year, while also increasing council tax by the maximum amount possible, pushing further cost increases on to cash-strapped taxpayers.
A spokesperson for the Department for Levelling Up, Housing and Communities said: “Councils are responsible for the management of their own finances and have seen an increase in core spending power of up to £5.1bn or 9.4% in cash terms on 2022-23.
“Section 114 notices are a local matter and the decision to issue one is made by the chief finance officer of the council.”
