[3][4] Despite the fact that local authorities in the United Kingdom cannot go bankrupt,[5] issuing a section 114 notice is often described in the media as a council effectively declaring bankruptcy.
[3] Once a notice has been issued, no new expenditure is permitted except to fund statutory services although existing commitments and contracts are honoured and staff wages are paid.
[13] Hackney London Borough Council issued a section 114 notice on 17 October 2000, predicting that it would have a £15.5m hole in its finances by the end of the financial year.
[38] The Chartered Institute of Public Finance and Accountancy said that the notice was "not surprising" due to general financial strain upon local government, budget pressures from Northamptonshire's education sector and its growing elderly population, and the county's 'transformation programme' which depleted savings reserves.
[41] The notice had been drafted in early September 2020 but had not been formally issued due to ongoing conversations with the Ministry for Housing, Communities, and Local Government over a possible solution.
[44][45] Croydon's external auditors Grant Thornton had highlighted the council's "deteriorating financial resilience" due to increased costs of adult and children's social care and low levels of reserves.
[49] In February 2023, Croydon was given permission by central government to increase council tax by 15%, 10 percentage points over the normal raise cap of 5%.
[52] The Written Statement accompanying the directions cited the discovery of significant additional historic issues as the reason for moving the intervention to a statutory footing.
"[56] On 7 June 2023, Woking Council issued a section 114 notice after forecasting a deficit of £1.2 billion for the year ending 31 March 2024 due to losses on risky investments involving hotels and skyscrapers instigated by a former Conservative administration.
[60] The council blamed the deficit on liabilities over equal pay claims, problems with the installation of a new IT system and government cuts amounting to £1 billion over ten years.
[62] An external audit statement made by Grant Thornton on 6 September said that relevations that would "significantly increase" the council's equal pay liabilities meant that its 2020/21 and 2021/22 accounts were "materially misstated".
[64] Anushka Asthana reported that the council had been effectively operating under section 114 spending controls for two months before the notice was officially issued.
[66] Labour leader Keir Starmer told BBC Breakfast that "[taking] a step back from Birmingham, you'll see there are versions of this across the country and that is because for 13 years local authorities have been stripped of the funding they need".
[69] Jess Phillips, Labour MP for Birmingham Yardley, said that the long-term pressures on councils would result in "more of this to come" and that other local authorities would also end up having to issue section 114 notices.
[66] A statement from the GMB union called the situation a "humiliating admission of failure" and said the council was responsible for the crisis because it had "stolen wages from its low-paid women workers".
[78] The government commissioners said the budget was "deliverable", but that "the real work of delivery needs to take place with discipline and pace" and that "[t]here are no other choices available".
[84] Nottingham City Council issued a section 114 notice on 29 November 2023, saying it was on track for a £23 million overspend for the 2023-24 financial year.
[88] Mellen had said that councils not being funded properly was the main reason for Nottingham's financial problems and that mistakes such as the defunct Robin Hood Energy firm were "small in comparison" to funding cuts,[88] despite the Local Democracy Reporting Service reporting that taxpayers were on the hook for £38.1 million after the energy company collapsed.
[91][92] In December 2023, it was announced that spending on improvements on Colwick Woods Court, a tower block in Sneinton, had been approved by the council's section 151 officer.
[86] The Local Government Information Unit said in a statement that Nottingham's notice "comes as no surprise" and highlighted how around one in ten councils were at risk of not being able to balance their budgets.
In May 2018, Somerset County Council said that unless it met its "ambitious financial savings targets" it would be unable to balance its budget and would have to issue a section 114 notice.
[96] In September 2023, Surrey Heath Borough Council's Liberal Democrat administration which had come into power at the 2023 elections warned that the local authority could be effectively bankrupt within two years due to debts of £165 million.
[97] The council's leader, Shaun Macdonald, blamed the former Conservative administration and Michael Gove, the local MP and the Secretary of State for Levelling Up, Housing and Communities, for being "asleep at the wheel".
[99] In September 2023, the leader of Havering London Borough Council warned the authority could be six months away from triggering a notice because of the increasing cost of social care and housing.
[100][101] In December 2023, leaders of Cheshire East Council said that they faced issuing a notice due to the cancellation of the northern part of HS2 after they had spent £11 million preparing for the rail line.
[104] Over 40 Conservative backbench MPs (including Greg Clark, Robert Jenrick, Jake Berry, Priti Patel, and Damian Green) wrote to Prime Minister Rishi Sunak in January 2024, warning that more emergency support was needed for local councils and threatening to vote against the Local Government Settlement unless more funding was made available.
[106] Among its recommendations was that the government should make £4 billion of funding available to councils for the 2024-2025 financial year to prevent more bankruptcies and cuts to local services.
[107] Clive Betts, the committee's chair, said that the financial crisis in local government was "out of control" and that without emergency funding, "well-run councils could face ... going bust".