Nottingham City Council declares itself effectively bankrupt over £23m budget deficit

Local authority denied that the move meant it was insolvent and said it will be able to meet current obligations to pay staff.

Nottingham City Council has become the latest local authority to issue a Section 114 notice, blaming its financial problems on real-terms cuts in Government funding and rising demand for services (Adam Peck/PA) (PA)

Nottingham City Council has become the latest local authority to issue a Section 114 notice, blaming its financial problems on real-terms cuts in Government funding and rising demand for services.

The authority said the move, widely regarded as effectively declaring bankruptcy, is in response to a predicted £23 million in-year budget overspend.

In a statement, the Labour-run council said it has “sufficient financial resources” to meet current obligations to pay staff and suppliers, and denied it is “‘bankrupt’ or insolvent”.

The statement said: “At the halfway point of the year, the council is forecasting a gross General Fund pressure of circa £57 million which is partly being mitigated from one-off in-year management and corrective actions.”

The corrective actions, including the use of previously approved reserves, are expected to reduce the “net forecasted pressure” for the year to around £23 million.

The statement added: “This situation has led the council’s corporate director for finance and resources and Section 151 officer, Ross Brown, to issue a Section 114(3) report to all councillors today.

“The council is not ‘bankrupt’ or insolvent, and has sufficient financial resources to meet all of its current obligations, to continue to pay staff, suppliers and grant recipients in this year.”

The driving force has been pressures in Adult and Children’s Social Care and Homelessness, representing over 90% of the council’s in-year overspend

Nottingham Labour group

In a separate statement, Nottingham’s ruling Labour group said of the news: “The reason for this is simple: demand for our services is rising while funding from the Government gets less in real terms each year.

“All councils are facing these pressures and many will be considering the issuing of a Section 114.

“The driving force has been pressures in Adult and Children’s Social Care and Homelessness, representing over 90% of the council’s in-year overspend.”

The statement continued: “Over many years we have sought to protect as far as we can the services that the people of Nottingham rely on and are proud of, but the pressures that we are facing are now unmanageable.”

Nottingham City Council is believed to be the third authority to issue a Section 114 notice this year, with a total of 12 such reports made since 2018.

Birmingham City Council issued a Section 114 notice in September, after admitting it had an estimated £760 million equal pay liability, and identified a budget shortfall for the current financial year of £87 million.

The notices require councils to follow expenditure rules, and prohibit some types of new spending.

The chief executive of the Local Government Information Unit (LGIU), Jonathan Carr-West, said: “Sadly this news comes as no surprise.

“We know that around one in 10 councils are at risk of effective bankruptcy. This represents a tragedy for millions of citizens who see the services they rely on at risk even as their bills rise.

“Councils need multi-year financial settlements where funding is connected to service demand not to political expediency, and they need more powers over raising and spending their own revenue.

“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.”