Nottingham city council has issued a section 114 notice, in effect declaring itself bankrupt, as experts warn an increasing number of councils are “reaching breaking point”.
In an announcement on Wednesday, the local authority said it had a significant gap in its budget and the council’s chief financial officer had decided it was not able to produce a balanced budget for this year.
The Labour-run council attributed its financial problems to issues affecting councils across the country, including an increased demand for children and adults’ social care, rising homelessness presentations and the impact of inflation.
It also acknowledged previous issues relating to financial governance and an overspend in the past financial year had played a part but said it still had sufficient financial resources to meet all of its current obligations.
Robert Jenrick, the Conservative MP for Newark in Nottinghamshire, said the council had displayed “breathtaking waste and incompetence” and called for the secretary of state to appoint commissioners to “restore order”.
A section 114 notice means all spending, apart from on protecting vulnerable people and providing statutory services, will be suspended.
Birmingham city council issued a section 114 notice in September because of financial problems compounded by a £760m equal pay bill and failed IT implementation costing £100m.
Sir Stephen Houghton, the chair of the Special Interest Group of Municipal Authorities (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.”
Accounts showed Nottingham city council was headed for a £23m overspend in the 2023-24 financial year, and government commissioners could be brought in to take charge.
The local authority has been beset by financial difficulties for years. The collapse of a council-run Robin Hood energy scheme in 2020 led to the loss of millions and a government-appointed board being brought in to monitor the council.
It was also revealed that more than £40m of ringfenced cash from the council’s housing revenue account was unlawfully spent as general funds, with the cost of repayment estimated to be £49m-£51m.
However, the council leader, David Mellen, has previously said the council’s financial “mistakes” were small in comparison with the year-on-year reduction of funding from central government, which was estimated to be a loss of £100m over the past decade.
Sigoma said Nottingham city council’s spending power was 28% lower in real terms compared with 2010-11, and the council was spending 31% of its budget on children’s services, up from 19% a decade ago.
Jonathan Carr-West, the chief executive of the Local Government Information Unit, said the news from Nottingham was unsurprising.
“Nottingham isn’t the first to issue a section 114 and certainly won’t be the last. More and more well-run and effective councils are saying that they could be next,” he added. “Government is quick to point the finger at ‘failing councils’ but the truth is we have a broken system.”
A spokesperson for the Department for Levelling Up, Housing and Communities said: “We used our statutory powers to intervene at Nottingham city council last year over serious governance and financial issues and have been clear that improvements must be made.
“We have expressed concern over the lack of urgency demonstrated by the council in addressing these challenges. We are assessing the situation and will consider whether further action is necessary.”
