One in ten municipal authorities facing section 114 notices: research

One-tenth of councils in England’s main urban areas face a Section 114 notice indicating effective bankruptcy.

That finding has come in research by the Special Interest Group of Municipal Authorities (Sigoma), a body within the Local Government Association that represents 47 urban councils mainly in the north and midlands.

A section 114 notice is issued by a council's chief finance officer and prevents all new spending except for statutory duties. The council concerned must then set a budget to reduce spending.

A Sigoma survey of its members found 10% were considering a section 114 notice this year, and almost 20% thought one could be possible in the next year.

Many said this would be the first time they had had to consider such drastic action, and cited a lack of cash reserves to balance the current year’s budget.

The most common cause of financial pressure was rising demand for children’s social care, but inflation, energy and wage rises were also significant factors.

Sigoma said the situation would likely worsen as high interest rates would soon begin to have an impact on borrowing costs as existing loans matured.

Since 2020, there have been 16 councils that have received exceptional financial support from the Department for Levelling Up Housing and Communities.

Sir Stephen Houghton, chair of Sigoma and Labour leader of Barnsley council, said: “The Government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last 12 months.

“At the same time as inflationary pressure, councils are facing increasing demand for services, particularly in the care sector.

“Pay increases are putting substantial pressure on budgets, and so the Government must ensure that local authorities have the additional funding they need to fully fund these pay increases or risk impacting future service delivery.”

Sir Stephen said the local government funding system was “completely broken” and called for additional in-year funding from the Government to relieve inflationary pressure.

He said this should be targeted at children’s services but should also cover this year’s pay deal.

The employers’ offer is a £1,925 a year increase, which is being disputed by some trade unions.

Mark Smulian