UK
Nottingham City Council effectively declares bankruptcy over ‘significant gap’ in budget
Nottingham City Council has declared itself effectively bankrupt after issuing a section 114 notice.
The Labour-run local authority confirmed the announcement on Wednesday, saying its chief financial officer had decided it “isn’t able to deliver a balanced budget for this year, which is a legal requirement”.
As a result of the section 114 notice, all new spending – with the exception of protecting vulnerable people and statutory services – must stop immediately.
It becomes the second local authority this year to fail financially, after Birmingham City Council issued its own 114 notice back in September.
Politics live: Starmer says Tories in ‘open revolt’
Politics Hub with Sophy Ridge
Sky News Monday to Thursday at 7pm.
Watch live on Sky channel 501, Freeview 233, Virgin 602, the Sky News website and app or YouTube.
The council has come under financial pressures after its attempt to enter the power market with Robin Hood Energy (RHE) failed in 2020, losing the authority millions.
It later got into trouble after spending millions of pounds ring-fenced for local housing as part of its general budget.
But the authority was also hit hard by changes to central government funding under the coalition government back in 2013/14, as well as soaring inflation and growing demand for social care.
The Department for Levelling Up decided against bringing in a commissioner after the failure of RHE three years ago, but gave an advisory board more powers to ensure the council adhered to their advice – with the threat of the final option hanging over their heads if their financial performance didn’t improve.
But now the section 114 has been issued, commissioners will likely be brought in to take charge.
A statement from Nottingham City Council said its executive board met last week to discuss a report into its latest financial position, as rumours swirled the authority was on the brink of bankruptcy.
Local or national government – who is to blame for struggling councils?
There is only one real political question about Nottingham City Council: Who shoulders more of the blame for running out of money – central government or the local politicians themselves?
Council budgets have been squeezed ever since George Osborne became chancellor in 2010: seen as an easy target for a Treasury hunting for savings.
According to the Local Government Association, since 2010 there has been a 27% real-terms cut in core spending power.
Given the spending pressures from inflation, particularly on social care, councils everywhere are suffering.
That said, of the 113 local councils in England, only 13 councils have issued section 114 notices – the action a local authority must take when it is about to spend more than their income. Birmingham was the last council to make the order in September, with Woking, Thurrock and Croydon before that.
Research by the Institute for Government found there is no correlation between the party that has political control of an authority and the likelihood of issuing a section 114 notice.
However, the government is very keen to make this a partisan issue, since Nottingham is a Labour council, and has been since 1998 – with not a single Conservative in the council chamber.
The council themselves blamed children’s and adults’ social care, rising homelessness and the impact of inflation, and claimed the “funding model” is broken.
However, the saga of “Robin Hood Energy” left a big dent in both the accounts and their credibility.
This scheme was established in 2015, set up to help people struggling with rising bills, and was heralded by Jeremy Corbyn when he was leader of the Labour Party – however it was unable to pay its bills, and ultimately closed, costing taxpayers £38m.
A damning report by an external auditor found the council was guilty of “institutional blindness” over RHE, prioritising political objectives over reality.
It found the council did not know the scale of the risk they had taken on and criticised the culture at the council, the reporting process and the way the company was handled, as well as the lack of accountability.
Hubris or well-intentioned but misguided, the council is still paying the price.
Whether the public draws political lessons remains to be seen.
Read more:
Which other councils have had financial issues?
Councils ‘running out of road’ to bridge funding gap
It said the report highlighted that “a significant gap remains in the authority’s budget, due to issues affecting councils across the country, including an increased demand for children’s and adult social care, rising homelessness presentations and the impact of inflation”.
But, it added: “Past issues relating to financial governance… and an overspend in the last financial year have also impacted on the council’s financial resilience and ability to draw on reserves.”
Leader of Nottingham City Council David Mellen told Sky News. “We are going to be paying our staff. We are just saying in this financial year we’ll be overspending against our budget.
“For 13 years we have been underfunded, pressures on us from services are difficult.
“Many other councils are struggling – we are not the first, we won’t be the last. We are not incompetent – the government has not funded us properly.
“We have lost £100m in our budget every year for the past 10 years.”
All of the city’s councillors will now have to hold a meeting in the next three weeks to discuss the ongoing issues.
But Nottingham City Council said both senior officers and its members “remain committed” to working with the government and its advisers to “put the council on a stable financial footing for the future”.
Click to subscribe to the Sky News Daily wherever you get your podcasts
However, Nottinghamshire MP and government minister Robert Jenrick attacked the Labour leadership at the council, saying they had “proven themselves utterly unfit to govern this great city”.
He added: “Their breathtaking waste and incompetence have let residents down for long enough. It’s time for the secretary of state to appoint commissioners to restore order.”