Birmingham City Council, the largest local authority in Europe, this week announced it was at serious risk of insolvency and issued a Section 114 Notice pursuant to the Local Government Finance Act 1988. Issuing such a notice means a local authority has judged itself to be in financial distress and can no longer balance its budget.
In June we reported on the rise of local council 'bankruptcies' following Woking, Thurrock and Croydon councils all announcing they were unable to balance the books this year. Our article explained the meaning of 'bankruptcy' for local councils noting that issuing a Section 114 Notice results in an effective freeze on all new spending, with the exception of funding statutory services and other limited expenditure. It also allows central government to intervene and, where it can, assist with ensuring local services are supported.
Birmingham City Council has confirmed that it will now halt all spending other than on services it must provide by law such as social care, waste collections and protecting the vulnerable. Its leader, John Cotton, noted that "tough and robust decisions" would now need to be made.
The Guardian newspaper describes the spate of local councils declaring they are at risk of insolvency as a 'contagion' spreading across the nation and asserts that it is likely to increase pressure on central government to assist during the cost of living crisis. It remains to be seen whether further local authorities will be forced to follow Birmingham, Woking, Thurrock and Croydon but, as we reported in June, surveys show that around 90% of councils are facing similar financial issues.
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