Nottingham City Council effectively declares bankruptcy over ‘significant gap’ in budget

Nottingham City Council has declared itself effectively bankrupt after issuing a section 114 notice.

The Labour-run local authority confirmed the announcement on Wednesday, saying its chief financial officer had decided it “isn’t able to deliver a balanced budget for this year, which is a legal requirement”.

As a result of the section 114 notice, all new spending – with the exception of protecting vulnerable people and statutory services – must stop immediately.

It becomes the second local authority this year to fail financially, after Birmingham City Council issued its own 114 back in September.

But councils of all stripes have already had to take the step as local finances continue to feel the strain.

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The council has come under financial pressures after its attempt to enter the power market with Robin Hood Energy (RHE) failed in 2020, losing the authority millions.

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It later got into trouble after spending millions of pounds ring-fenced for local housing as part of its general budget.

But the authority was also hit hard by changes to central government funding under the coalition government back in 2013/14, as well as soaring inflation and growing demand for social care.

The Department for Levelling Up decided against bringing in a commissioner after the failure of RHE three years ago, but gave an advisory board more powers to ensure the council adhered to their advice – with the threat of the final option hanging over their heads if their financial performance didn’t improve.

But now the section 114 has been issued, commissioners will likely be brought in to take charge.

A statement from Nottingham City Council said its executive board met last week to discuss a report into its latest financial position, as rumours swirled the authority was on the brink of bankruptcy.

It said the report highlighted that “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 presentations and the impact of inflation”.   

But, it added: “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.”

The council insisted it still had “sufficient financial resources to meet all of its current obligations” – including paying its staff and suppliers.

All its councillors will now have to hold a meeting in the next three weeks to discuss the ongoing issues.

But Nottingham City Council said both senior officers and its members “remain committed” to working with the government and its advisers to “put the council on a stable financial footing for the future”.

However, Nottinghamshire MP and government minister Robert Jenrick attacked the Labour leadership at the council, saying they had “proven themselves utterly unfit to govern this great city”.

He added: “Their breathtaking waste and incompetence have let residents down for long enough. It’s time for the secretary of state to appoint commissioners to restore order.”

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