Nottingham City Council has declared itself effectively bankrupt, meaning it will have to halt all new spending, other than services it must provide by law.

In an announcement on Wednesday, the local authority said it had a significant gap in its budget and the council’s chief financial officer had decided it was not able to produce a balanced budget for this year.

The Labour-run council’s chief finance officer issued a section 114 notice and said that the authority was unable to deliver a balanced budget for the 2023-24 financial year.

The announcement makes Nottingham the second city to declare financial failure this year after Birmingham City Council issued a similar notice in September.

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 an increased demand for children's and adults' social care, rising homelessness presentations and the impact of inflation, a Nottingham City Council statement notes.

The council is not bankrupt or insolvent and has sufficient financial resources to meet all of its current obligations, and to continue to pay staff, suppliers, and grant recipients this year, it stressed.

According to the council's assessment report, the council is set for a GBP 23 million overspend in the 2023-24 financial year. With an immediate prohibition period taking effect, a meeting of all councillors must now take place within 21 days to consider the Section 114 report.

Until councillors have met, the spending controls already in place will be further tightened, with the practical impact being that all spending that is not already contractually committed or otherwise agreed upon by the officer in charge is immediately stopped.

Robert Jenrick, the Conservative MP for Newark in Nottinghamshire, said the council had displayed “breathtaking waste and incompetence” and called for the secretary of state to appoint commissioners to “restore order”.

In September, Birmingham City Council issued a section 114 notice due to financial difficulties compounded by an equal pay bill of £760 million and an unsuccessful £100 million IT implementation.

Sir Stephen Houghton, the chair of the Special Interest Group of Municipal Authorities (Sigoma), said the government risked “seeing an epidemic of S114 notices” as Nottingham council’s crisis showed “the funding model is completely broken”.

“There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point,” he said.

“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 BBC was informed by Nottingham City Council leader David Mellen that he will not be resigning in the wake of the council's effective bankruptcy.

"We will continue to pay our bills, we will continue to pay our staff," he stated.

The council, he said, "has to be considered" for all non-essential spending, but it will not close its newly constructed £10 million library, which formally opened on Tuesday.

When asked if he considered his position at the council, Mr Mellen said, "Today is not about my position. It is about the position of the jobs here at the council. It is about the people receiving services from the council."

In a joint statement, Nottingham's three MPs - Nadia Whittome, Alex Norris, and Lilian Greenwood - said the "government's failure to get a grip on unprecedented rising demand for social care and homelessness has now pushed the council over the edge, forcing it to issue a section 114 notice".

It read, "Our constituents should not be made to suffer further cuts to local services at a time when they face the biggest drop in living standards since records began.

"We will be working with local councillors to mitigate the impact that today's development has on residents, and in Parliament fighting for proper reform of the social care system, real action to tackle homelessness, and funding for local services."

A spokesperson for the Department of Levelling Up, Housing and Communities 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."

The local government has been struggling financially for a long time. The failure of a council-operated Robin Hood energy initiative in 2020 resulted in significant financial losses, leading to the appointment of a government-established board to oversee the council's operations.

Image source: Telegraph