Nottingham City Council declares itself ‘bankrupt’ over £23m budget black hole

Nottingham City Council is the latest in a succession of councils to issue a section 114 notice, which will result in “reductions in service provision” the council’s chief executive has said.

In an s114 notice issued yesterday, Nottingham City Council’s chief finance officer forecasted a budget deficit of £56.9m which, after using reserves of £9.4m and other corrective actions, has been reduced to a forecast deficit of £23.4m.

In December 2021, Nottingham City Council was also forced to issue an s114 notice after unlawfully diverting funds from its housing revenue account, which contains a local council’s rental income, and its wholly owned housing company, Nottingham City Homes, into its general fund.

>> See also: Birmingham council declares itself effectively bankrupt

Since 2017, eight councils have issued s114 notices, including two separate notices from Northamptonshire and three from Croydon. Other councils to have issued s114 notices include Slough, Northumberland and Thurrock as well as Nottingham. In June and September of this year, Woking and Birmingham respectively issued s114 notices.

A recent survey by the Special Interest Group of Municipal Authorities (SIGOMA) found that one in 10 councils has considered issuing an s114 notice this year, while nearly one in five (20%) said they may have to do so next year.

Sir Stephen Houghton, chair of SIGOMA, said the government risked “seeing an epidemic of S114 notices” as Nottingham council’s crisis showed “the funding model is completely broken”.

“There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point,” he said.

“The chancellor in his recent autumn statement had the perfect opportunity to help address some of the well-publicised pressures in local government and the wider public sector but failed to do so.”

In March this year, Nottingham City Council said it had set a balanced budget, but increased demand for adults and children’s social care, as well as temporary accommodation, had pushed that budget into the red.

Some councils may issue more than one notice due to the expectation of expenditure exceeding income for multiple financial years.

In a letter to stakeholders, Mel Barrett, chief executive of Nottingham City Council, said the council had “reduced financial resilience” after having had to use significant financial reserves to cover historic losses from the failure of Robin Hood Energy, an arm’s-length council company.

Barrett said: “It will be increasingly difficult for us to continue providing the full range and standard of services we currently deliver.”

He added that there will need to be “reductions in service provision or withdrawal in some areas, subject to decisions made by councillors”.

When Nottingham issued an s114 notice in 2021 it said that, despite the misallocation of funding from its HRA since 2019, 701 additional homes funded through the HRA have been completed, purchased or are in progress.

In 2020, Nottingham City Council pledged to build or acquire 1,000 new homes for rent by 2024. In its 2022/23 annual council housing performance report, it said that a further £150m will be invested in housing stock to meet the Decent Homes Standard.