Council hints at possible section 114 notice as it wrestles with “mountain of unsustainable debt”

Woking Borough Council is "in the territory" of issuing a section 114 notice after having to dip into its reserves in order to deliver a balanced budget for the coming financial year, according to a report on the council's finances.

The report, which is to be discussed at an extraordinary council meeting today (23 February), reveals that the council withdrew £8.3m from its reserves to cover its budget for 2023/24, and it is "not evident at this stage" how the council will balance its budget for 2024/25.

It also states that the progression of the council's work on its 2024/25 budget "may lead to the issuing of a S114 notice".

If a council cannot find a way to finance its budget, then a S114 notice must be issued. The issuing of the notice bans all new spending, with the exception of protecting vulnerable people and statutory services and pre-existing commitments.

In an effort to recover, the council has moved to an "essential spend" position, meaning that any spend that is discretionary and can be avoided or deferred should not be made. It has also approved a 3% raise in council tax.

The report recommends three further actions to secure the council's short and medium-term financial position. These are:

• A fundamental reset of the council's budget, and service provision, within the resources now available. This will require consideration of priority services towards which limited resources should be focussed;
• A programme of enhanced governance and financial controls is required to provide timely and informed information, track savings and improve oversight of the council's investments;
• A medium-term plan to optimise the council's strategic property investment portfolio in the best and long term interest of the borough. "The solution should provide financial benefits through revenue income or capital receipts from disposals whilst delivering, where possible, on the place making benefits identified on securing and holding the assets."

Earlier this year, an independent team was appointed by the Department for Levelling Up, Housing and Communities (DLUHC) to conduct a review of the council's finances, investments and related governance.

This came after DLUHC raised concerns about the council's high levels of debt in October 2022.

According to the report, a review of two council investments - the Thameswey Group and Victora Square investments - indicates "risks through asset values less than loan balances, reductions in valuations, long term business plans which are sensitive to assumptions and require support for many years, and losses which may be realised and not contained within the Group".

Speaking ahead of today's meeting, Cllr Dale Roberts, Portfolio Holder for Economic Development and Finance, said the council faces "a mountain of unsustainable debt, together with an uncertain and challenging future. It will require painful decisions about which services we can deliver".

"Significant obstacles lay ahead including an over-dependence on commercial rent and parking income, unaffordable debt and budgetary restraints usually applied under a Section 114 notice."

Cllr Roberts continued: "Rescuing the borough's finances will require implementing a fundamentally revised budget beyond this Medium Term Financial Strategy, optimising the council's investment portfolio, and improving governance and controls. It will also require significant debt restructuring and that is not our decision to make.

"The path ahead is long, narrow, uncertain and precarious. Yet it is the only one available to us to rebuild a council focused first on delivering services, investing in local priorities, is prudent, has regained the confidence of government and most importantly has restored the trust of residents."

Cllr Ann-Marie Barker, Leader of Woking Borough Council, said: "Since my administration gained control of Woking Borough Council, getting its finances under control and presenting a balanced budget for 2023/24 has been our priority."

Despite the setting of a balanced budget, "the council's medium and long-term financial position remain critical," Cllr Barker added.

"It remains unclear how the council will establish future balanced budgets without making difficult decisions around the continued delivery of some services. Further cost savings are inevitable to reduce the unsustainable reliance on the council's financial reserves."

Adam Carey