Councils that cannot meet spending commitments are forced to issue section 114 notices - something Birmingham has done - but cannot officially go ‘bankrupt’.
A council’s chief financial officer is the person in charge of this. In their role, they have a strict legal duty to issue a ‘section 114 notice’ if they believe the council will be unable to pay what is due to go out with the money they are due to be getting in from its income. The chief financial officer does not need councillors’ consent to issue this notice and must make the alert if they have a belief the threshold has been met by issuing what is known as a Section 114.
What is Section 114?
A Section 114 notice is a public notice that publicly declares there is an issue. To issue a Section 114 means the council is forbidden from making new spending commitments and must meet within 21 days to discuss what to do next and look at all of the options on the table.
Previously, other councils in this situation have then passed an amended budget to recoup money and reduce the spending on some services.
Other councils that have been bankrupt in recent years?
Thurrock, Croydon, Slough and Northamptonshire have all issued Section 114 notices in recent years.
Thurrock issued the notice at the end of 2022 and said the funding gap was the result of financial losses from the council’s investments and due to the need to repay investment debt.
Croydon’s Section 114 was in November 2022 and Slough’s was in July 2021.
Northamptonshire has also found itself in trouble in the past and issued a Section 114 in 2018, becoming the first council to do so in 20 years, after racking up debts of around £1 billion.
A Best Value Report was carried out and led to plans to abolish the county council and the seven local borough councils and replace them with two unitary authorities.