Bankrupt’ Nottingham City Council faces interest costs to pay off emergency financial support

The Labour-run authority effectively declared itself bankrupt in November last year, after it was unable to close a budget gap of £23m.

It also had to fill a separate £53m gap in the 12 months beginning April 2024.

To help it set a balanced budget across both years, the former Conservative Government agreed on a package known as exceptional financial support (EFS).

The council was loaned money with the expectation it will pay it back by selling property assets, and special permission was given so it could use money from property sales, known as ‘capital receipts’, for day-to-day operational costs.

During a council audit committee meeting on July 26, officers said the debt should be paid off by the end of the end of the 2025-26 financial year.

However, the council is expecting to face interest charges because it is having to borrow money to pay off some of the support while it waits for property sales to be completed.

Glenn Hammons, interim finance lead at the council, said: “If we take the last financial year, the council asked for about £25m of EFS, but, as reported back to executive in June, the actual amount needed was £17m and that was fully paid in the year by capital receipts.

“In the current financial year, as set in budget, EFS was £41m.

“We are expecting, based on a risk-adjusted forecast of receipts, that we will get back £25m in receipts for contribution towards that £41m in the current financial year.

“The rest of it will be paid for by temporary borrowing, for which the council will incur an interest charge.

“In 2025-26 capital receipts expected to be generated in the pipeline will pay off the remaining elements of that EFS in the current financial year.

“Ultimately by 2025-26 the EFS granted by Government will be paid off by capital receipts we have got in the pipeline.”

Between 2020-21 and 2023-24 the authority made just over £80m from selling property assets it no longer needs.

Assets that have been auctioned off include the Grade II-listed Canal House, which sold for £1.2m, the Hartley Court industrial units, which sold for £1.5m, and Karlsruhe House, which went for £950,000.

The council is still looking to sell numerous high-value assets such as the Guildhall on Burton Street and former Central Library building in Angel Row.

Most of the money brought in from asset sales has been going towards reducing the council’s overall debt levels, after it brought in a voluntary debt reduction policy following the collapse of Robin Hood Energy in 2020.

The authority measures its overall debt and borrowing costs through what is called the ‘capital financing requirement’.

This is the total amount of capital spending which has not yet been financed by capital receipts, capital grants or contributions from revenue, and represents the underlying need to borrow money long-term.

The requirement, as of March this year, was expected to fall to just over £1.249bn.

Back in 2020-21, the requirement had stood at £1.411bn.