Nottingham City Council has declared itself "effectively bankrupt" with desperate plea for Government help.
The council has issued a Section 114 notice, which is a formal declaration it cannot balance its books. It could mean local services are impacted as no more new funding will be committed.
Nottinghamshire Live first reported at the start of November that the Labour-led authority was on the verge of issuing the notice, indicating that the council's spending is likely to be higher than what it has available during the financial year.
Nottingham City Council’s chief finance officer issued a report under Section 114 as, in "his professional opinion, the council isn’t able to deliver a balanced budget for this year, which is a legal requirement", the council published on its website.
The post said a "significant gap" remains in the authority’s budget, due to issues affecting councils across the country, including an increased demand for children’s and adults’ social care, rising homelessness and the impact of inflation, according to a report discussed at the council’s Executive Board meeting last week.
In July, the council admitted it was estimating a budget gap of over £50million. It said today past issues relating to financial governance and an overspend in the last financial year have also impacted on the council’s financial resilience and ability to draw on reserves.
A Section 114 notice means a council cannot balance its books and is effectively bankrupt. Nottingham City Council said it was 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. A meeting of all councillors will take place within 21 days to consider the report.
Cllr Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities, said the news was "more evidence that the funding model is completely broken". "Our recent survey found that 30% of our members risked issuing a Section 114 notice in the next 2 years. There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point," she said.
"Councils are operating with a spending power that is 19% lower in real terms compared to 2010/11. For more deprived councils the reduction has been greater – for the urban councils we represent, the average is 25%, for Nottingham it is 28%. At the same time, demand on services is rising rapidly, particularly in the care sector. Nottingham City Council now spends 31% of its spending power on children’s services, up from 19% a decade ago. Stubborn inflation is also significantly impacting across a range of cost pressures from energy to pay."
Cllr Sir Stephen said more funding "is desperately needed to avoid more councils also issuing section 114 notices". "The chancellor in his recent autumn statement had the perfect opportunity to help address some of the well-publicised pressures in local government and the wider public sector but failed to do so."
Jonathan Carr-West, chief executive of the Local Government Information Unit, said "sadly this news comes as no surprise". "We know that around one in ten councils are at risk of effective bankruptcy. This represents a tragedy for millions of citizens who see the services they rely on at risk even as their bills rise," he said.
"Councils have been continuing to pull every lever available to them to balance their books: raising council tax, cutting services, and spending their finite reserves, and still we are seeing an ever-increasing number of councils unable to make ends meet in the face of central government spending cuts and increasing demand for - and cost of - council services, particularly adult and children’s social care," he said.
Ms Carr-West added: "Nottingham isn’t the first to issue a section 114 and certainly won’t be the last. More and more well-run and effective councils are saying that they could be next. Government is quick to point the finger at 'failing councils' but the truth is we have a broken system.”
It comes after Birmingham City Council declared itself bankrupt in September as it struggles with an outstanding £760million equal pay bill. The local authority, which is the largest in Europe, has stopped all but essential services and will be blocked from new spending.