- The council warned in July that ‘difficult decisions’ had to be made to fill the gap
Nottingham City Council is on the verge of declaring bankruptcy, it has emerged.
The Labour-led authority announced in July it was struggling with a £26million gap in its finances for its ongoing financial year, which ends in April 2024.
Now, the Midlands-based council appears to be following suit on a string of council’s in crisis across the UK, after Somerset Council declared a financial emergency yesterday amid fears that it could go bust like Birmingham.
According to reports from Nottinghamshire Live, Nottingham City Council is on the verge of issuing such a notice, with an official announcement possible in the coming days.
Earlier this year, the council revealed that it would be drawing up plans to fill the budget gap, with its finance chief warning that ‘difficult decisions’ would have to be made.
Since then, the council’s financial pressure has been indicated by a string of announcements, most recently the cancellation of its annual fireworks event for the fourth year in a row, for which they blamed the ‘very difficult economic climate.’
Now, the Chief Finance Officer (CFO) may be forced to issue a Section 114 notice.
This notice is issued if the CFO believes that their council’s spending is likely to be higher than what it has available during the financial year.
In contrast, Somerset Council declared a financial emergency so that it wouldn’t have to file such notice.
Councillor Liz Leyshon, lead member for resources, said that Somerset Council would ideally look to avoid filing a Section 114 notice because it would have to fork out ‘£1,200 a day each plus expenses’ for government commissioners.
But if Nottingham did issue this notice, it would be discussed at the weekly meeting of Nottingham City Council’s executive and then with the full Labour group of 50 councillors before the official announcement is made, though the CFO has the authority to issue a Section 114 even if councillors disagree.
The Institute for Government says that 13 councils have issued Section 114 notices since the legislation introducing them was passed in 1988, with the most recent council to do so being Birmingham on September 5.
The section notice triggers a period in which entering into any new spending is effectively banned unless the CFO gives permission.
The law indicates that a CFO may give permission if they believe the spending would prevent the situation from getting worse, improve the situation or stop it happening again.
The restriction on spending and financial activity under a Section 114 does not prevent a council from delivering its statutory services, including the protection of vulnerable people.
In May last year, a decision by the Nottingham City council to invest in a ‘Communist energy plan’ ended up costing taxpayers millions of pounds.
Robin Hood Energy, which was established in 2015, set out to help people struggling with rising bills.
But the not-for-profit company ended up closing five years later, costing local taxpayers £38million and leaving 230 workers redundant.
Separately, the local authority was found in December to have ‘unlawfully’ spent over £15million from council tenants’ rents on the wrong services.
A further investigation revealed last month that another £24million may also have been wrongly spent.
The total lost from all three areas is up to £77million.
Nottingham Council started Robin Hood Energy – formerly known as Europa Energy Supply Limited – with high hopes.
At its peak, it boasted more than 125,000 customers, including former Labour leader Jeremy Corbyn, who mentioned the company during his party conference speech in 2016.
But by March 2019 it was in the red by more than £34million, with the council investing a total of £43million into the firm.
In October that year, energy regulator Ofgem threatened to withdraw Robin Hood Energy’s licence over unpaid bills, demanding £9.5million within a month – which the company obtained via a loan from the council.
But a year later it missed late payment deadlines and was issued with a final order by Ofgem. The firm later shut down, with customers transferred to British Gas.
In December 2020, a Government inspector warned that Nottingham Council was at risk of having to declare bankruptcy without a significant bailout – but it did not go bust.
Council leader David Meller insisted at the time Robin Hood Energy ‘was a well-intentioned attempt to address the…cost of living crisis’ and he makes ‘no apology’ for the attempt.