Nottingham City Council asks Government for exceptional financial support amid budget black holes

The Labour-run authority took the extraordinary step of issuing a Section 114 notice on Wednesday, November 29, amid a £23m budget gap.

Chief finance officer Ross Brown said the council was unable to set a balanced budget as legally required, owing to reduced Government funding and soaring demand and costs for social care and homelessness services.

The collapse of council-run Robin Hood Energy and unlawful spending from its Housing Revenue Account also left its reserves depleted.

Extra financial support has now been requested for both the 2023-24 and 2024-25 financial years, because of a separate budget gap of £53m in the year beginning April 2024.

If granted, the support will not be in the form of a Government grant.

Instead it is likely to be a combination of loans and special permission to raise money from council assets and spend it on day-to-day operational costs.

A consultation has been taking place to ask Nottingham residents their thoughts on a raft of service cuts and the axing of 554 jobs.

A council spokesman refused to say how much the council is seeking.

They said: “A request for exceptional financial support is being discussed with the Department for Levelling Up Housing and Communities.”

When councils ask the Government for exceptional funding support, it grants what is known as a capitalisation direction.

It is not additional funding from the Government, but permission that a council can use resources that would typically be unavailable to support revenue spending.

The direction allows a council to use its existing capital budgets to cover day-to-day spending, and lets it use assets sales, which are typically returned to capital budgets, to fund day-to-day costs.

It can also borrow from the Public Works Loan Board, which is operated by the UK Debt Management Office (DMO) on behalf of HM Treasury, and provides loans to local authorities.

The direction is provided on the condition each local authority is subject to an external assurance review on their financial position.

They are only usually granted on the condition that a council pays off the capitalisation over the next 20 years and pays a one per cent premium on any borrowing from the Government, alongside the review.

Numerous local authorities have been granted exceptional financial support in the past, including Nottingham, which previously received £20 million for 2020-21 and an in-principal allocation of up to £15 million in 2021-22.

However the council withdrew the request for the second tranche, according to a Government publication.

Transformation programmes and critical changes across various services have been taking place ever since the Government appointed an improvement board upon the collapse of Robin Hood Energy.

In its most recent communications, the Government said it is now ‘minded-to’ appoint commissioners, who will take power away from elected officials in a bid to put in place improvements more quickly.

A final decision on further intervention is due imminently.

The council spokesperson added: “In practical terms this will be to seek permission to ‘capitalise’ revenue expenditure so that it is treated as capital expenditure and can be met from the council’s capital resources.”