Nottingham City Council declares effective bankruptcy

Nottingham City Council has declared itself effectively bankrupt after issuing a section 114 notice.
By Joe Locker, Local Democracy Reporter

Nottingham City Council has issued a Section 114 notice, declaring itself effectively bankrupt.

All spending, other than on the services the council must provide by law, will now stop.

The Labour-run authority’s chief finance officer, Ross Brown, issued a report under Section 114(3) of the Local Government Finance Act 1988 on Wednesday afternoon (November 29).

It means in Mr Brown’s professional opinion, the council isn’t able to deliver a balanced budget for this year as required by law.

While councils cannot go ‘bankrupt’ in the traditional sense, a notice can be issued if it is considered a council has no prospect of setting a balanced budget.

Increased demand for children’s and adults’ social care, rising homelessness and the impact of inflation have added to the council’s existing financial pressures, leading to a gap that currently stands at £23m.

Mr Brown said it had previously stood at £57m before a “whole host” of corrective actions were applied.

The authority is already being closely monitored by a Government-appointed improvement board following a string of financial failings, including the collapse of Robin Hood Energy in 2020, costing the taxpayer up to £38m. It was also found to have misspent of funds from the Housing Revenue Account, which is a fund collected from council housing rent. The cost of this totals up to £51m.

In a statement, the council said: “A report discussed at the council’s Executive Board meeting on 21 November outlines the council’s latest financial position and highlights 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.

“At the halfway point of the year, the council is forecasting a gross General Fund pressure of [circa]£57m which is partly being mitigated from one-off in-year management and corrective actions (including use of previously approved reserves) reducing the net forecasted pressure for the year to [circa]£23m.

“Past issues relating to financial governance which led to the appointment of an Improvement and Assurance Board, and an overspend in the last financial year have also impacted on the council’s financial resilience and ability to draw on reserves.

“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 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.

“A meeting of all councillors will now need to take place within 21 days to consider the report and an immediate prohibition period takes effect from today. Until councillors have met, the spending controls already in place will be further tightened, with the practical impact being that all spending that is not already contractually committed or otherwise agreed by the Section 151 Officer is immediately stopped.

“Senior Officers and Members remain committed to continuing to work with the Improvement and Assurance Board and the Department for Levelling Up, Housing and Communities to put the council on a stable financial footing for the future.”

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