Nottingham City Council is considering issuing a section 114 notice – effectively declaring bankruptcy – as it still faces a £23m budget gap this year despite attempts to make savings.
Documents published by the Labour-run authority on November 13 show it has so far managed to bring an in-year deficit of £26m down to just over £23m.
It had previously stood at £57m.
Despite the “extensive efforts” to bridge the gap, significant financial pressures remain.
There has so far been no additional funding from the Government to help the current situation, documents say.
The council, which is already being overseen by a Government-appointed improvement board following the collapse of Robin Hood Energy, says a significant reduction in Government funding, inflation and staff pay-rise pressures continue to pose a challenge.
The reduced funding, by around £951 per household or more than £100m per year over the last decade, paired with soaring demand for social care services, have contributed to the creation of extremely difficult conditions for the authority to operate in, reports say.
During Full Council on November 13, Cllr Graham Chapman (Lab) said the council is now looking at the issuing of a section 114 notice.
A section 114 notice generally demonstrates a council is facing effective bankruptcy unless it quickly gets its finances in order, and all new spending deemed non-essential could cease in a bid to achieve this.
Local authorities cannot technically go ‘bankrupt’ in the same way a company or an individual can, but instead a notice is issued by a council’s chief finance officer if it has no prospect of setting a balanced budget.
“We are left in a position where we are having to look at the [section] 114, issuing 114,” Cllr Chapman said.
“The problem with 114s is they were originally aimed at egregious activity, not mainstream activity of a council.
“The problem we have got now is with a 114, even if it is served, it is not going to solve the problem.
“It is not going to solve the massive problem of massive demand for children’s services. It is not going to solve the problem of massive demand for homelessness and it is not going to solve the problem of massive demand for adult social care.
“So there is, at the moment, no particular solution.”
According to the documents, published shortly after Cllr Chapman’s comments and ahead of a meeting of the Executive Board on November 21, although a substantial number of mitigating and corrective actions have been identified, the council is still left with a “substantial unbalanced position as a percentage of its net budget which continues to put it at a risk of being unable to balance its budget in-year.”
People Services, which includes adult social care and children’s social care, is forecasting the most significant pressures.
A net pressure of £18.752m, up from £14.537m earlier in the year, is still being predicted, 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.
Around £900,000, up from £463,000 earlier in the year, relates to pressures arising from Special Educational Needs and Disabilities (SEND) transport costs.
The Growth and City Development department remains in a difficult position, forecasting a net pressure of £3.444m, up from £2.946m earlier in the year, largely due to increased demand and the costs of using emergency hotel and B&B accommodation for those facing homelessness.
Documents also highlight of the £15.671m savings needed as part of ongoing transformation work, around £6.155m (39.2 per cent) have been delivered or are on track while £9.516m (60.8 per cent) remain at risk of non-delivery.
Higher interest rates on cash balances, including in the Housing Revenue Account (HRA), have helped bring down the overall budget gap this year so far.
“Given that the current indication is that there will be a projected overspend of £23.351m at year end, the council’s [Section 151 Officer] will need to consider what further action is required to address this issue,” documents add.
The council’s director of finance and Section 151 Officer, Ross Brown, will be making a formal assessment of the council’s ability to deliver a balanced budget in year as required under the Local Government Act 1988.
If a balanced budget cannot be set, Mr Brown has the power to issue a section 114 notice.
Besides a freeze on new spending, in other council areas where a 114 notice has previously been issued, property sales, job losses and other deep cuts have followed.
Government commissioners have also been enforced on some councils which have issued the notice, effectively removing power from elected councillors and instead handing it to officials until financial issues are solved.