Nottingham City Council has been issued with a section 114 notice as it is unable to deliver a balanced budget this year.
Corporate director for finance and resources and section 151 officer Ross Brown made the determination after considering the council’s financial position.
The council is forecasting a net pressure for the year of c£23m. Although this is down from the gross general fund pressure of c£57m predicted at the halfway point of the year, which has been partly mitigated by one-off in-year management and corrective actions including the use of reserves, the financial position has still necessitated the issuing of a section 114 notice.
In doing so, Brown also cited a “highly volatile” operating environment and wider economic context” with “small changes in demand disproportionately materialising in large financial pressures, particularly in social care and homelessness”.
Noting attempts to make savings and the use of reserves, Brown said his professional opinion was that the council’s budget could not be balanced.
“Since my appointment as the council’s permanent s151 officer in January 2023 I have been conscious of the limited financial control environment in place at the council and have instigated significant controls through the Finance Improvement Plan to improve clarity and transparency that have shaped and influenced my professional assessment of the council’s financial position,” Brown’s section 114 report read.
“In setting a balanced budget for 2023/24, the council temporarily repurposed £20m of earmarked reserves in 2023/24 to establish an adequate balance on the Financial Resilience Reserve. This repurposing is repayable and contained as part of the revised medium-term financial plan (MTFP). It should be recognised that pursuing such a course of action highlighted the fragility of the council’s financial resilience position.”
Brown added: “I have considered the suitability of deploying further reserves in year. This assessment was undertaken on a multi-year basis (four-year medium-term financial plan), considered the overall adequacy of reserves, considered all relevant CIPFA guidance, and an assessment of risk exposure. I have concluded that it would not be prudent for the council to act in this way.”
A hypothetical £13.165m of reserves could technically be deployed in-year, he said, but this “would not only be insufficient to close the gap it would also significantly undermine the financial resilience of the council, as the consequences of not keeping a minimum prudent level of reserves can be serious”, Brown said. “In the event of a major problem, or a series of events (including further overspends in year), the council could be forced to cut spending during the year in a damaging and arbitrary way, that given the current context of the council’s budget setting methodology of duties and powers, could result in the breaching the council’s legal duty.”
Brown said he had undertaken “extensive engagement” over the past few months with key stakeholders prior to issuing the s114 notice, including the council’s corporate leadership team, leader and deputy leader, its executive, external auditors Grant Thornton, the Improvement and Assurance Board, Local Government Association advisors, and the Department for Levelling Up, Housing and Communities (DLUHC).
The council noted “issues affecting councils across the country” as drivers for its predicament, including an increased demand for children’s and adults’ social care, rising homelessness presentations and the impact of inflation.
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, it said.
A warning about the possibility of issuing a section 114 notice was made earlier this month, with a budget monitoring update highlighting the precarious financial position.
Next steps
A meeting of all councillors will now need to take place within 21 days to consider the report and an immediate prohibition period takes effect from today (21 November).
Until councillors have met, 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 by the section 151 officer is immediately stopped”.
In his section 114 report, Brown said the council would now take “immediate steps” to mitigate the forecast 2023/24 overspend “by proposing a financial recovery plan to deliver a balanced budget as legally required”.
This should include delegation to the s151 officer to “further develop and implement the financial recovery plan which will bring the general fund back to a balanced position, including reporting requirements” and the continuation of the spending controls.
A review of existing commitments, including an assessment of the capital programme and potentially delaying existing projects and expediting assets for sale, will also take place.
The plan should also include consideration of the delivery of any 2024/25 draft budget proposals in 2023/24 and the consideration of any service cessation in 2023/24 that the council does not have a legal duty to fulfil, Brown said.
Nottingham City Council will formally engage with the government through DLUHC to request Exceptional Financial Support (EFS).
If controls are not adhered to, or do not achieve the required outcomes, a further s114 report will need to be issued, Brown said.
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