As Labour-run Nottingham City Council becomes the SEVENTH to declare bankruptcy since 2018, experts warn 20 or 30 more could follow in the next few years… so could YOURS be next?
- Nottingham City Council declared bankruptcy after going GBP23m over budget
- It followed Northampton, Croydon, Thurrock, Woking, Slough and Birmingham
By Lettice Bromovsky[1] and Gina Kalsi[2]
Published: 07:13, 4 December 2023 | Updated: 07:56, 4 December 2023
Nottingham[3] City Council has become the seventh local authority to declare bankruptcy since 2018, but insiders have told MailOnline up to 30 more councils could follow suit over the next few years.
The Labour run council was forced to issued a section 114 notice yesterday declaring that they were unable to balance their 2023/2024 budget, and was on course for a GBP23 million overspend[4].
It followed Northampton, Croydon, Thurrock, Woking, Slough and most recently Birmingham[5] City Council, Europe’s largest local authority, who issued its 114 notice in September.
On Friday, Brighton[6] and Hove City Council warned it is in ‘financial peril’ and will have to cut millions of pounds in spending next year to balance its books.
Council leader Bella Sankey said the authority has a GBP31 million budget gap to meet for next year after the government’s autumn statement[7] fell ‘disastrously short’ on meeting inflation[8] costs and rising demand for services.
Jonathan Carr-West, Chief Executive of the Local Government Information Unit, told MailOnline: ‘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.
‘Government is quick to point the finger at ‘failing councils’ but the truth is we have a broken system.’
He said the news was ‘no surprise’ as ‘around one in ten 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,’ he added.
Labour-run Nottingham City Council has today declared itself effectively bankrupt after it revealed it was set for a GBP23million overspend in just one year (Nottingham City Council HQ Loxley House pictured)
This comes as Somserset Council faces up to a GBP100million funding black hole, leaving it at risk of issuing a section 114 notice.
The council is now looking at their options raise money, which include selling properties, increasing council tax further and reducing services.
Cllr Liz Leyshon, Somerset Council’s Lead Member for Resources and Deputy Leader, said: ‘The funding model for local Government is clearly broken, with many councils struggling in light of soaring costs and demands on services.
‘In Somerset we’re simply running out of money due to the soaring costs of demand-led services, particularly the costs of residential and nursing care for adults.
‘This is not because of poor control of service spend, it is simply an exceptionally large increase in our costs for demand-led services which we have no choice but to manage.’
Latest figures are expected to show around a GBP70m increase in adult social care costs for 2024 to 2025.
Medway Council also faces nearly a GBP40m budget gap in the next financial year. A report from September rated the risk of them issuing a section 114 notice as ‘very likely’.
Labour ended 20 years of Conservative rule at the council after making 11 gains in the local election earlier on this year.
Its campaign pledged to deliver the lowest council tax in Kent and the party committed to create 1,000 new jobs.
Similarly, Middlesbrough Council issued a serious financial warning in August, after predicting a GBP11.5m hole in its budget.
The Labour-run council have cut back by GBP2.5m so far, but need to find another GBP9m to cover the gap.
Documents have also shown that Leicestershire County Council’s budget gap could exceed GBP100m in the next four years.
Leader of the Conservative-run authority Nick Rushton told councillors that ‘hell would freeze over’ before his administration filed a Section 114 notice.
Labour leader of Nottingham City Council David Mellen’s full letter blaming the Government for the authority going effectively bankrupt today
He told LeicestershireLive[9]: ‘In all honesty, it doesn’t solve anything.
All they do is send in administrators and tell you to do things that, if we’re sensible, we can do ourselves.
There is no magic money tree they send in.’
Southampton City Council is also at risk of going bust, as as report found that its spending beyond its means.
Steve Harrison, a financial planning chief officer, warned the it was at risk of ‘financial failure’.
The chief executive of the Labour-run council, Mike Harris, gets a hefty pay cheque of up to GBP191,063 a year, which works out around GBP99.03 an hour, according to The Mirror. [10]
Cash-strapped Coventry City Council has said it will do ‘everything it can’ to make sure a section 114 is not issued.
The council’s website stated: ‘We are going to have introduce a range of significant proposals that will save money to enable us to meet our legal requirement of setting a balanced budget in the next two years.’
Coventry City Council said that children’s and adult social care eats up more than 70 per cent of its entire budget.
The Local Government Association (LGA) revealed last month that Councils in England would face a funding gap of GBP4 billion over the next two years.
On top of this they have experienced a cut of 40 per cent in central government grant funding, slashing it in real terms from GBP46.5billion to GBP28billion.
Cllr Shaun Davies, Chair of the LGA said: ‘We know that around 1 in 10 councils are expected to issue 114 notices but that number will undoubtedly rise.
This is just the start of a massive upward trend.’
‘I know from speaking to a lot of cross-party councils and councillors that there is not a single one of them that can look past the next three years without falling off a cliff (financially).
‘Predictions of the future are very very bleak right now.’
Councillor Davies blamed the situation on ‘a perfect storm, thanks to 15 years of austerity, cost of living, energy bills but also unprecedented demand on housing and social care.’
David Mellen, leader of the Labour-led authority which declared bankruptcy yesterday after a string of bad decisions
Nottingham City Council announced in July it was struggling with a GBP26million gap in its finances for the financial year ending next April.
Since last year the Council has been involved in a string of bad decision, including deciding to invest in a what was described by critics as a ‘Communist energy plan’.
Robin Hood Energy, which was established in 2015, set out to help people struggling with rising bills, but instead ended up closing five years later, costing local taxpayers GBP38million and leaving 230 workers redundant.
Separately, the local authority was found in December to have ‘unlawfully’ spent over GBP15million from council tenants’ rents on the wrong services.
A further investigation revealed last month that another GBP24million may also have been wrongly spent.
The total lost from all three areas is up to GBP77million.[11]
Even this year the council had to cancel its annual fireworks event for the fourth year in a row, because of the ‘very difficult economic climate’.
Since 2020, 16 councils have received exceptional financial support from the Department of Levelling Up, Housing and Communities (DLUHC), with seven announced this year.
The section notice triggers a period in which any new spending is effectively banned unless the CFO gives permission.
The law indicates that a CFO may give permission if they believe the spending would prevent the situation from getting worse, improve the situation or stop it happening again.
The restriction on spending and financial activity under a Section 114 does not prevent a council from delivering its statutory services, including the protection of vulnerable people.
References
- ^ Lettice Bromovsky (www.dailymail.co.uk)
- ^ Gina Kalsi (www.dailymail.co.uk)
- ^ Nottingham (www.dailymail.co.uk)
- ^ for a GBP23 million overspend (www.dailymail.co.uk)
- ^ Birmingham (www.dailymail.co.uk)
- ^ Brighton (www.dailymail.co.uk)
- ^ autumn statement (www.dailymail.co.uk)
- ^ inflation (www.dailymail.co.uk)
- ^ LeicestershireLive (www.leicestermercury.co.uk)
- ^ The Mirror. (www.mirror.co.uk)
- ^ The total lost from all three areas is up to GBP77million. (www.dailymail.co.uk)