Tuesday 16 July 2024
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East Midlands: City councils all facing financial problems

The dire financial situation seen in Nottingham could be repeated in cities across the East Midlands, with similar councils’ budgets also balanced on a knife edge.

Nottingham City Council was forced to declare effective bankruptcy last month due to a £23m black hole in its budget.

However, mounting costs and dwindling reserves are a real concern across other nearby cities, with some warning they too may have to issue Section 114 notices.

The key question for authorities is whether they can set a balanced budget for the financial next year, as required by law. They may use their reserves, but this is a one-off solution which will eventually be exhausted if they aren’t replenished.

Councils’ finances have been shaken by rising costs and soaring inflation over the last two years, coupled with a long-term decrease in funding from central government.

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Costly mistakes – such as the failure of Robin Hood Energy and misspent housing money, in Nottingham’s case – has also depleted some councils’ reserves.

Figures compiled by Unison last year found councils in England, Scotland and Wales were facing a £3.5bn shortfall over the next year, with almost a third at least £10m short.

The Local Democracy Reporting Service has taken a look into the finances of town halls close to Nottingham’s, to see how the region’s overall public finances are faring.

Leicester City Council

The bleak position of Leicester City Council, also Labour-run authority, is arguably the closest to that of Nottingham.

Both are unitary authorities, meaning they are responsible for all aspects of local government services.

The Leicester council said in October it had an £87m shortfall for the current financial year, which is predicted to hit £165m in 2024-25.

It had on hand £66m of reserves and another £15m for emergencies, but £34m will be used in the current year and the rest could be quickly exhausted.

A recent budget report warned: “The medium-term financial outlook is the most severe we have ever known. Like many authorities, we face the real probability of not being able to balance our budget in 2025/26 leading to a Section 114.”

Elected Mayor Sir Peter Soulsby (Lab) wrote in October: “In 2024/25, in common with many others, we face substantial cost pressures. Savings are increasingly difficult to find.

“Without substantial cuts, we face a near-impossible cliff edge in 2025/26. The remainder of the reserve faces exhaustion in 2024/25.”

Derby City Council

Derby City Council says the financial challenges are the worst it has ever known.

The authority believes it will be able to set a balanced budget for the next financial year.

But beyond that, it has a predicted £14m gap for 2025/26, and a £15m gap for 2026/27, although it has managed to reduce both through spending cuts.

The council has had to draw on its reserves, which were £64m at the start of the year.

All £5m of the budget risk reserve has been used, along with £4.5m of the General Fund, but it plans to top these up again in the next financial year.

Nevertheless, the council says that its finances are still of extreme concern.

“Derby City Council is not in imminent danger of being in S114 territory, but it would also be misleading to suggest that our financial position is anything less than the most challenging it has been, since the authority became a unitary council in 1997,” a recent budget report said.

 

Government ‘ready to talk’

A spokesperson for the Department of Levelling Up, Housing and Communities, which sets council funding levels, said: “Councils are ultimately responsible for their own finances, but we remain ready to talk to any concerned about its financial position.

“We recognise they are facing challenges and that is why we have announced a £64 billion funding package to ensure they can continue making a difference, alongside our combined efforts to level up.”

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