February 24, 2024
One in six council bosses fear their authority will declare bankruptcy next year

Nottingham Council becomes the latest council to issue a Section 114 notice in the last three years – SAKhanPhotography

A new survey reveals that one in six council bosses expect their officers to effectively declare themselves bankrupt next year.

Nearly 17 per cent of council leaders and chief executives in England think their chief financial officers could issue a Section 114 notice in 2024-25, stopping all new spending, according to a Local Government Association (LGA) survey.

It comes as the LGA warned that the “cashless” autumn statement left councils facing a “growing financial crisis”.

Local authorities in England face a funding gap of £4bn over the next two years as services collapse, the organization said, with urgent help needed from the Government to avoid “huge cuts”.

Eight councils have issued section 114 notices in the past three years, with Nottingham becoming the latest to do so last week.

Birmingham City Council, Europe’s largest local authority, was also forced to take outrageous measures in September.

The Labour-run council said it had been pushed to the brink of equal pay claims totaling £760 million, as well as the £100 million cost of a poor IT plan.

An LGA survey conducted last month found that 20 per cent of council leaders think their officers are very likely to do the same next year, while 15 per cent of chief executives think the same.

‘Growing financial crisis’

Council leaders are elected politicians who oversee decisions on behalf of the community, while chief executives are paid staff in charge of putting policies into practice.

It is up to the Chief Financial Officer of a council to issue a section 114 notice when it appears that their authority’s expenditure in any year will exceed its available resources.

Meanwhile, almost two-thirds of council bosses – both leaders and chief executives – said the autumn statement did nothing to help them deal with their financial situation.

The LGA wants to see additional support for councils in the upcoming local government finance settlement so they can set balanced budgets next year without making widespread cuts.

Half of council bosses said they did not believe they would have enough money next year to carry out their statutory duties, which include statutory services such as social care and support for the homeless.

LGA chairman Shaun Davies said: “The reduction in funding for local services in the Autumn Statement leaves councils facing a growing financial crisis.

“No council is immune to the risk of falling into financial difficulty. As our worrying survey shows, many now face the prospect of being unable to meet their legal duty to set a balanced budget and issue Section 114 reports.

“Local government is the fabric of our country, councils provide hundreds of services that our communities rely on every day. For many people, these services are a lifeline.

“If councils cannot develop then our communities cannot develop. If council-provided social care services cannot cope with demand, the pressure on the NHS will increase further. If council housing teams cannot succeed, all our hopes for new homes will not come to fruition.

“While councils have worked hard to reduce costs, find efficiencies and transform services, easy savings have long been lost. “The Government needs to take urgent action to address the serious financial challenges facing councils.”

More ‘painful’ cuts in services

The Department for Levelling Up, Housing and Communities has been contacted for comment.

Leaders and 114 chief executives of 71 of England’s 317 councils completed the anonymous survey. It is possible that some councils may have sent multiple responses.

A separate survey by the County Council Network (CCN) found that the majority of its members believe the Autumn Statement has left them “much worse off”.

CCN, which represents 23 counties and 13 unitary authorities serving almost half the population, also found that 70 per cent are now unsure whether they can balance their books next year, compared with 40 per cent who did so previously. The same was said in the survey also. Chancellor’s statement last month.

The increased pressure is largely due to increases in the national living wage, which will cost CCN councils an estimated £6.3 million per year.

The organization said 80 per cent now planned more “painful” cuts to services and 90 per cent suggested they would see a maximum increase of 4.99 per cent in council tax next year.

In a letter to Communities Secretary Michael Gove, who is due to give evidence to MPs on council finances on Wednesday, CCN leaders said: “Local government is a vital part of the fabric of this country but every reduction in service erodes the role of councils. Taxes make it harder to play a part in society and provide the vital services that businesses and communities rely on: from protecting the most vulnerable, revitalizing their areas to simple things like keeping our streets clean.

He said cuts to services and council tax increases were “a situation we would all like to avoid in a general election year”.

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