Middlesbrough Council’s Executive will be asked to approve an application for exceptional financial support from government in a bid to avoid issuing a section 114 notice.
A report from interim director of finance and section 151 officer Debbie Middleton outlining this course of action will be considered by the Executive on 17 January.
If approved, the exceptional financial support provided by the Department for Levelling Up Housing and Communities (DLUHC) might ensure Middlesbrough can balance its budget in 2024/25.
If no such support is applied for, or provided, it would be necessary to issue a section 114 notice, the report stated.
The authority is struggling under the weight of a £6.279m funding deficit this financial year, despite proposed savings and other measures. Further gaps of £1.596m for 2025/26 and £0.305m for 2026/27 are expected, equivalent to a cumulative budget gap of £8.180m.
Draft savings and income growth proposals totalling £14m in 2024/25 are currently subject to consultation. These savings rise to by a further £5.083m in 2025/26 and £1.967m in 2026/27, creating a cumulative savings plan of £21.088m by the end of 2026/27.
On the possibility of issuing a section 114 notice, Middleton said doing so would be an action of last resort as it is “likely to have a significant adverse impact upon the council’s ability to maintain delivery of a range of non-statutory services in the short term whilst a plan to achieve a balanced budget is considered by the council”.
Middleton also noted that an escalation of government intervention which would likely follow an s114 would result in increased expenditure for the council.
“Based upon the budget development work undertaken to date, it is considered to be highly unlikely that it will be possible to identify and deliver robust and sustainable saving proposals to close the £6.3m budget gap without implementing a large-scale transformation programme of the type being developed currently to run over the medium term,” Middleton wrote.
“This will take time and substantial investment in the necessary skills, experience and technology required to deliver lasting service improvement and cost reduction.”
Only exceptional financial support would therefore “enable the council’s financial recovery either at this stage that would avoid a s114 notice, or at a later stage in a s114 scenario”, she said.
As reported, the possibility of asking for exceptional finance support was first raised in August 2023, when a “significant risk” of the council exhausting its usable revenue reserves in 2023/24 was identified.
Although that possibility now “appears to be much less of a risk”, the report said exceptional financial support is still needed “to balance the budget for 2024/25 whilst we implement plans to work towards financial recovery”.
This government support would take the form of a capitalisation direction that would enable the council to treat revenue expenditure as capital and to borrow and repay this amount at a premium rate over Public Works Loans Board (PWLB) borrowing over a period of up to 20 years.
“It is a one-off solution in order to finance the capitalisation of revenue expenditure in a particular year to provide breathing space for the council to implement plans to recover its financial position. It is not a grant and is not free money,” the authority said.
Approval will depend upon the council being able to demonstrate a plan to deliver its financial recovery and will be subject to a number of conditions that will be determined by the secretary of state.
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