By Joe Locker, Local Democracy Reporter
Nottingham City Council has asked the Government for forms of ‘exceptional financial support’ after it effectively declared itself bankrupt at the end of November last year.
The Labour-run authority took the extraordinary step of issuing a Section 114 notice on Wednesday, November 29, amid a £23m budget gap in the current financial year.
Chief finance officer Ross Brown said the council was unable to set a balanced budget as legally required, owing to reduced Government funding and soaring demand and costs for social care and homelessness services.
The collapse of council-run Robin Hood Energy and unlawful spending from its Housing Revenue Account also left its reserves depleted.
Extra financial support has now been requested for both the 2023/24 and 2024/25 financial years, because of a separate budget gap of £53m in the year beginning April 2024.
If granted, the support will not be in the form of a Government grant.
Instead it is likely to be a combination of loans and special permission to raise money from council assets and spend it on day-to-day operational costs.
A consultation has been taking place to ask Nottingham residents their thoughts on a raft of service cuts and the axing of 554 jobs.
A council spokesman refused to say how much the council is seeking.
They said: “A request for Exceptional Financial Support for the current financial year 2023/24 and next year, 2024/25, is being discussed with the Government Department for Levelling Up Housing and Communities.”
When councils ask the Government for exceptional funding support, it grants what is known as a capitalisation direction.
It is not additional funding from the Government, but permission that a council can use resources that would typically be unavailable to support revenue spending.
The direction allows a council to use its existing capital budgets to cover day-to-day spending, and lets it use assets sales, which are typically returned to capital budgets, to fund day-to-day costs.
It can also borrow from the Public Works Loan Board, which is operated by the UK Debt Management Office (DMO) on behalf of HM Treasury, and provides loans to local authorities.
The direction is provided on the condition each local authority is subject to an external assurance review on their financial position.
They are only usually granted on the condition that a council pays off the capitalisation over the next twenty years and pays a one per cent premium on any borrowing from the Government, alongside the review.
Numerous local authorities have been granted exceptional financial support in the past, including Nottingham.
Slough, for example, was granted a capitalisation direction of £127.8m in principle for 2020/21, £95.3m in 2021/22, £84.1m in 2022/23 and most recently £31.6m for 2023/24.
Thurrock has sought the most capitalisation support, totalling £632.7m over a period between 2022/23 to 2023/24.
Nottingham City Council was previously granted exceptional support from central Government in the form of a capitalisation direction in two tranches, the first being £20 million for 2020/21 and an in-principal allocation of up to £15 million in 2021/22 to support ongoing transformation.
However the council withdrew the request for the second tranche, according to a Government publication.
Transformation programmes and critical changes across various services have been taking place ever since the Government appointed an improvement board upon the collapse of Robin Hood Energy.
In its most recent communications, the Government said it is now “minded-to” appoint commissioners.
If appointed, they will take power away from elected officials in a bid to put in place improvements more quickly, by allowing the taxpayer-funded officials to make changes themselves.
A final decision on further intervention is due imminently, after the deadline for representations closed on January 2.
The City Council spokesman added: “In practical terms this will be to seek permission to ‘capitalise’ revenue expenditure so that it is treated as capital expenditure and can be met from the council’s capital resources.”
