Nottingham City Council leader not confident £23m budget gap will be filled without 'more severe measures'

Coun David Mellen (Lab) also confirmed it was now possible the authority would issue a Section 114 notice, effectively declaring bankruptcy.

While councils cannot go legally ‘bankrupt’ in the traditional sense, a notice can be issued by the chief finance officer if they feel the council has no prospect of setting a balanced budget.

The threat of the notice comes after documents published by the Labour-run authority on November 13 revealed it still has an in-year budget gap of just over £23m.

The authority is already being closely monitored by a Government-appointed improvement board, established upon the collapse of the council-run Robin Hood Energy in 2020, which cost the taxpayer in the region of £38m.

However, Coun Mellen says the more recent financial problems are the result of the underfunding of local government.

He said: “It (Section 114) is a possibility, but it hasn’t been issued as yet.”

Since 2010 the amount of money Nottingham receives each year from Central Government has fallen by more than £100m.

According to the Institute for Government (IfG), most Section 114 notices have been issued due to a ‘degree of financial mismanagement’.

Nottingham Council issued a Section 114 notice back in 2021, but this was due to unlawful spending from its Housing Revenue Account, the cost of which is now estimated at £51m.

However, the IfG says the context in which Section 114s are more frequently occurring is important – namely ‘sharp cuts’ in local government grants.

Thirteen councils have issued Section 114 notices, the most recent being Birmingham in September.

Coun Mellen said: “Birmingham had two big issues – failure of a computer system and an equal pay claim.

“So that is a different situation.

"But the reason why Nottingham and other councils are currently having Section 114 as a possibility is because of the underfunding of local government.

“The report published shows our overspend was slightly less than it was four months ago but it’s not moving down fast enough to be able to give us confidence that we will be able to balance the budget by the end of the year without more severe measures.”

Earlier in November a letter, signed nationally by 119 council leaders was sent to Chancellor Jeremy Hunt (Con), calling on him to address the issues of financial distress in local government.

In response, a Government spokesperson said local authorities ‘have seen an increase in core spending power of up to £5.1bn in cash terms on 2022-23, with almost £60bn available for local government in England’.

Mr Hunt is due to make his Autumn Statement next week.

Coun Mellen continued: “There is a fundamental lack of funding for local government in this country.

“Central Government needs to wake up and realise this is not a political issue, this is a local government issue.

“It won’t be a few savings here and there, it will be whole services falling over.”

Coun Mellen added that he wanted to reassure staff amid the financial challenges, saying: “We still need good people working for local authorities and good people working for the local council, serving the people of Nottingham with compassion and respect and dedication.”