Nottingham City Council declares 'effective bankruptcy' - here's what you need to know

Nottingham City Council has issued a Section 114 notice, effectively declaring itself bankrupt.

This means the authority must halt all spending apart from services it must provide by law. The notice comes after the council was unable to deliver a balanced budget for 2023-24, which is a legal requirement.

It is not the first council to declare effective bankruptcy this year. Birmingham City Council issued a S114 in September after admitting it needed help to manage the financial crisis.

The Prime Minister has said local people "deserve better than Nottingham City Council" and rejected the notion that his Government cuts to local councils were the root cause of Nottingham's financial challenges. Citing the issues as a product of "financial mismanagement".

Read more: Nottingham news.

What is a Section 114 notice?

A Section 114 notice triggers a period where new spending is effectively banned unless approved by the Chief Financial Officer (CFO). According to the law, the CFO may give permission if they think spending would help the situation from getting worse or stop it from happening again.

Why is Nottingham City Council bankrupt?

The declaration comes after the City Council was unable to provide a balanced budget for the financial year.

According to ITV News, a report discussed at the Nottingham City Council Executive Board Meeting earlier this month showed it was set for a £23m overspend in the 2023-24 financial year.

It showed a significant gap in the authority's budget due to issues including increased demand for children and adult social care, a rise in rough sleepers, and the overall impact of inflation.

Full statement from Nottingham City Council

A full statement from the City Council said: "Nottingham City Council’s chief finance officer has today (Wednesday 29 November) issued a report under Section 114(3) of the Local Government Finance Act 1988 because, in his professional opinion, the council isn’t able to deliver a balanced budget for this year, which is a legal requirement.

"A report discussed at the council’s Executive Board meeting on 21 November outlines the council’s latest financial position and highlights that a significant gap remains in the authority’s budget, due to issues affecting councils across the country, including increased demand for children’s and adults’ social care, rising homelessness presentations and the impact of inflation. "At the halfway point of the year, the council is forecasting a gross General Fund pressure of c£57m which is partly being mitigated from one-off in-year management and corrective actions (including use of previously approved reserves) reducing the net forecasted pressure for the year to c£23m.

"Past issues relating to financial governance which led to the appointment of an Improvement and Assurance Board, and an overspend in the last financial year have also impacted on the council’s financial resilience and ability to draw on reserves. This situation has led the council’s Corporate Director for Finance and Resources and Section 151 Officer, Ross Brown, to issue a Section 114(3) report to all councillors today."

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What happens next?

Notice of the Section 114 was officially published by Ross Brown, Nottingham City Council's Corporate Director for Finance.

A full Nottingham City Council meeting will need to be held within 21 days to consider what comes next. All unnecessary spending must be held unless approved by the CFO.

It's important to note a Section 114 notice does not prevent a council from delivering its legal services which includes the protection of vulnerable people. Statutory services provided by the council include waste collection and child safeguarding. These will not be affected.