Labour-run Nottingham City Council declares itself 'bankrupt' after revealing more than £23m overspend in just one year

Labour-run Nottingham City Council has today declared itself effectively bankrupt after it revealed it was set for a £23million overspend in just one year.

A recent report said the council was forecasting a £57million black hole in its 2023-24 budget, which has been 'partly mitigated' with by moves including dipping into the reserves, which reduced this spend by more than half to £23million.

Council finance boss Ross Brown today issued a Section 114 notice as he does not believe the council is able to deliver a balanced budget for this year, as it is legally required to do.

The notice means that the council will be barred from all spending apart from services which is must provide by law.

A report discussed at an executive board meeting on November 21 highlighted a 'significant gap' in Nottingham City Council's budget.

The council blamed the gap on 'issues affecting councils across the country' which included and increased demand for children and adult social care, rising homelessness and inflation.

The council has been plagued by financial issues in recent years and was already being monitored by the government.

All councillors are now set to meet within 21 days to consider the report and an prohibitions on spending are in effect from today.

Spending controls will be tightened further until councillors have met, with 'the practical impact being that all spending that is not already contractually committed or otherwise agreed by the Section 151 Officer is immediately stopped'.

Nottingham is the latest in a string of councils to go 'bankrupt' across the UK in recent years, including Labour-run Birmingham and Liberal Democrat-run Woking earlier this year and Tory-run Thurrock in 2022.

Labour council leader David Mellen blamed the council's financial woes on a 'combination of Conservative austerity, out of control inflation and rising demand in social care' - and he slammed ex-PM 'Liz Truss and short lived government that crashed our economy' for exacerbating the problem.

He added: '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.

'This is happening at a time when we have had years of underfunding from the Tory government. Over the past ten years, we have received £100 million less each year than we did before 2013, representing a loss of a billion pounds. That is £694 less funding per resident each year. Councils cannot cope with an increase in demand coupled to a decrease in funding.'

He criticised PM Rishi Sunak saying he has 'little interest in the needs of ordinary working people in cities like Nottingham' as he 'only cares for the rich' and Tory party unity.

He said the issues began with former PM and Chancellor David Cameron and George Osborne who 'began all of this with their obsession with austerity', adding that they have 'let down the people of Nottingham and our country'.

'The only thing that will save local governments across the country from having to issue more and more section 114s in the future is a Labour Government and proper financial support and funding for local authorities,' Cllr Mellen said.

A spokesperson from the Department for Levelling Up, Housing & Communities (DLUHC) 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, despite the efforts of the Improvement and Assurance Board. Ministers have been clear that the onus is on the council to deliver the necessary improvements to the Board's satisfaction.

'We are assessing the situation and will consider whether further action is necessary.'

Cllr Sir Stephen Houghton, Chair of the Special Interest Group of Municipal Authorities (SIGOMA), said: 'The situation with Nottingham City Council is more evidence that the funding model is completely broken. Our recent survey found that 30% of our members risked issuing a Section 114 notice in the next 2 years.

'There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point. Councils are operating with a spending power that is 19% lower in real terms compared to 2010/11. For more deprived councils the reduction has been greater – for the urban councils we represent, the average is 25%, for Nottingham it is 28%.

'At the same time, demand on services is rising rapidly, particularly in the care sector. Nottingham City Council now spends 31% of its spending power on children's services, up from 19% a decade ago. Stubborn inflation is also significantly impacting across a range of cost pressures from energy to pay.

'It is clear that more funding is desperately needed to avoid more councils also issuing section 114 notices. 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. The upcoming local government finance settlement is a last resort and must be used to stabilise council finances or we risk seeing an epidemic of S114 notices.'

Jonathan Carr-West, chief executive of the Local Government Information Unit (LGIU), 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 said.

'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.'