By Joe Locker, Local Democracy Reporter
The leader of Nottingham City Council says he is not confident the authority is filling a £23m budget gap fast enough to avoid more severe measures.
Cllr David Mellen (Lab) also confirmed it was now possible the authority would issue a Section 114 notice, whereby a council effectively declares bankruptcy.
While councils cannot go legally ‘bankrupt’ in the traditional sense, a notice can be issued by the chief finance officer if they feel the council has no prospect of setting a balanced budget.
If a notice is issued, services would continue to run, and existing agreements continue to apply, but all new non-essential spending may cease.
Government commissioners may also be appointed to temporarily run a council which declares a 114, taking power away from local elected councillors.
The threat of the notice comes after documents published by the Labour-run authority on November 13 revealed it still has an in-year budget gap of just over £23m.
In the last four months the council has managed to bring the figure down from £26m, but a balanced budget must be set by the end of the financial year by law.
The final decision on issuing the notice sits with Ross Brown, the council’s finance director and Section 151 Officer.
Cllr Mellen told the Local Democracy Reporting Service: “It is something that is a possibility, but it hasn’t been issued as yet.”
The council is already being closely monitored by a Government-appointed improvement board, established upon the collapse of the council-run Robin Hood Energy in 2020. The company’s demise cost the taxpayer in the region of £38m.
However, Cllr Mellen says the more recent financial problems are now down to more than a just a political issue, and are the result of the underfunding of local government.
Since 2010 the amount of money Nottingham receives each year from central government has fallen by more than £100m.
According to the Institute for Government (IfG), most Section 114 notices have been issued due to a “degree of financial mismanagement”.
Nottingham City Council issued a Section 114 notice back in 2021, but this was due to unlawful spending from its Housing Revenue Account (HRA), the cost of which now estimated at £51m.
However, the IfG says the context in which Section 114s are more frequently occurring is important – namely “sharp cuts” in local government grants.
Thirteen councils have issued Section 114 notices, the most recent being Birmingham City Council, and more are expected to follow.
“Years of austerity, including major cuts in funding since 2010, are taking their toll,” a separate local government organisation, the Local Government information Unit (LGiU) adds.
There are three main sources of the in-year financial troubles in Nottingham, as set out in documents published on November 13, and these include adult social care, children’s social care and homelessness.
A net pressure of £18.752m, up from £14.537m earlier in the year, is still being predicted in People Services, of which £4.968m relates to adult social care and is driven by external care placement costs.
A further £13.507m relates to children’s social care, mainly due to demand and cost of care placements.
“Birmingham had two big issues, one was the failure of a computer system and one was an equal pay claim, I think hundreds of millions in total,” Cllr Mellen added.
“So that is a different situation. But the reason why Nottingham and other councils are currently having [Section 114] as a possibility, and it is a possibility, is because of the underfunding of local government and the pressures on our budgets from three sources.
“The report published shows the overspend was slightly less than it was four months ago but that is not moving down fast enough to be able to give us confidence that we will be able to balance the budget by the end of the year without more severe measures.”
Earlier in November a letter, signed nationally by 119 Conservative, Labour, Liberal Democrat, Green and independent council leaders in total, was sent to Chancellor Jeremy Hunt (Con).
It called on him to address the issues of financial distress in local government, in particular the homelessness crisis.
In response a Government spokesperson said local authorities “have seen an increase in core spending power of up to £5.1bn or 9.4 per cent in cash terms on 2022/23, with almost £60bn available for local government in England”.
Mr Hunt is expected to make his Autumn Statement next Wednesday (November 22) – which could address the ongoing strains on local councils.
“There is a fundamental lack of funding for local government in this country,” Cllr Mellen said, adding he hopes the Chancellor will announce additional spending for councils.
“Central Government needs to wake up and realise this, this is not a political issue, this is a local government issue.
“It won’t be a few savings here and there, it will be whole services falling over.”
He said he wanted to reassure staff amid the financial challenges and added: “Although we still recruit staff, and I was speaking with 60 new staff just last week, there are also those who are leaving and feel perhaps less secure than they would have been once.
“I would want to reassure them and say we still need good people working for local authorities, and good people working for the local council, serving the people of Nottingham with compassion and respect and dedication.”
