Nottingham City Council: The Changes One Year After its ‘Effective Bankruptcy’ Declaration

A year has passed since Nottingham City Council, led by Labour, confirmed what many had anticipated: its effective insolvency. The council became one of an increasing number of local authorities to issue a section 114 notice, signaling its inability to present a balanced budget. Significant transformations have occurred, including reductions in employment and services, a shift in leadership, and ongoing future uncertainties. The section 114 notice was formally issued on 29 November 2023 by Ross Brown, who was then the council’s chief finance officer. This served as a formal statement that, in his expert assessment, the council could not establish a balanced budget for the 2023-24 financial year, a requirement legally mandated for all councils annually. While frequently described as “effectively declaring bankruptcy,” a local council cannot technically become bankrupt in the same manner as a company or a private individual. Council employees maintained their salaries, and numerous council services proceeded without disruption, at least initially. Nevertheless, the notice initiated a procedure where all new expenditures were required to cease, apart from services legally mandated for the council to deliver, such as social care and waste collection. Consequently, “effectively bankrupt” is an imprecise term – and one that some council members opposed at the time – yet it remains the most commonly understood phrase to characterize the situation. To this day, the underlying causes for the situation differ based on the perspective. Labour councillors attribute it to prolonged funding reductions imposed by the preceding Conservative government. Conversely, their adversaries highlight significant missteps, such as the failure of Robin Hood Energy, a company operated by the council. All parties concur that the authority has been impacted by elevated inflation and increasing demand for services. It is important to acknowledge that all these contributing factors may coexist. In the immediate aftermath, the council was compelled to endorse a strategy to address a £23m deficit in its budget for the 2023-24 financial year. This was primarily achieved through the utilization of reserves and the sale of council assets. However, the financial pressure showed no indications of diminishing. By March, the council had sanctioned extensive cuts in an effort to close an additional £53m budget shortfall for 2024-25. These savings included a re-evaluation of community centers, with the council eventually aiming to cease all financial contributions to their operation. Shanine Fasasi, the manager of the Beechdale Community Centre, stated that when she assumed her role two years prior, the council covered all expenses for maintenance and utilities, including water and lighting. She noted that “within months” of the section 114 notice’s issuance, the responsibility was transferred to the centre’s management, which now must secure funding from alternative channels. Fasasi commented, “Funding has become really difficult to obtain. We’re not the only centre in Nottingham facing these challenges so there’s a lot more people trying to access the funding pool.” She also expressed, “Sometimes I wonder, how long can we keep doing this for?” It is also important to consider that such reductions are not necessarily a direct consequence of the section 114 notice. They might have occurred regardless, but they underscore the persistent pressure on local authorities. Furthermore, some hold the view that the notice might never have been issued had the council implemented such savings more promptly in preceding years. In brief, a substantial amount has changed. Alongside the reductions and alterations to services, numerous new personnel have been introduced. In February of this year, the then-Conservative government appointed commissioners to assist in the council’s administration. These commissioners possess the authority to intervene and override councillors, but to date, they have not found it necessary to exercise this power. Their initial appointment was for a two-year term, which is subject to alteration or extension if circumstances deviate from expectations. The commissioners’ communication thus far suggests that progress is being made, but a considerable journey remains. David Mellen resigned from his leadership position in March, with Neghat Khan succeeding him two months subsequent. Khan initially acknowledged the immense undertaking before her, but in October, she stated that the challenge proved even greater than anticipated. The council’s other senior executive role also has a new incumbent. Sajeeda Rose was named chief executive in August, articulating that “huge change” remained necessary. Furthermore, Ross Brown, the chief finance officer responsible for issuing the section 114 notice, has departed to assume a role at the London borough of Bexley. A section 114 notice is applicable solely to one financial year, making its reoccurrence a possibility. The primary metric that dictates its issuance is the in-year budget deficit. When the notice was initially issued, this gap amounted to approximately £23m. One year later, the most recent figure supplied by the council for 2024-25 stands at £2.9m; it has been indicated that this sum might rise slightly in the forthcoming weeks. While this figure still appears substantial, within the context of council budgets, it is not deemed insurmountable. Superficial observation suggests that developments are progressing favorably. However, a significant qualification exists: a substantial portion of this deficit has been addressed through “exceptional financial support” (EFS). This technical procedure entails divesting council assets and allocating the proceeds to cover routine operational expenses, a practice typically not permitted for local authorities. For the 2024-25 period, £41m in EFS has already been utilized solely to achieve this seemingly more manageable in-year deficit. In an interview with the BBC this week, Khan indicated that the council would likely need to persist with this approach to balance its budget in subsequent years. The authority possesses a remarkably extensive property portfolio, amassed over many years, providing additional assets that can be divested. This, however, does not represent a sustainable resolution, as an asset can naturally only be sold a single time. Nevertheless, Khan generally expresses “confidence” that a subsequent notice can be averted, and she has received assurance from the new chief finance officer that “we are not in that territory.” The financial difficulties persist, with the demand for services continuing to escalate. Projections released earlier this year anticipated a cumulative budget deficit of £172m across the next three years. It has been communicated that the most recent figures, which are yet to be made public, have “significantly moved on” from that initial assessment. Numerous uncertainties remain, particularly as councils do not ascertain the precise amount of funding they will receive from central government until mid-December. Despite this, all indications suggest that, irrespective of future developments, a substantial deficit will still require resolution. Other local authorities that have issued section 114 notices, including Birmingham, have implemented council tax increases exceeding the standard cap. Nottingham has, to date, managed to circumvent such a sharp increase, though council leader Khan has stated that council tax is an aspect they will “have to look at.” Details regarding budget proposals for the upcoming year are anticipated in the forthcoming weeks. Khan asserts that the era of incremental cuts, or “salami slicing,” has concluded, and instead, “radical change” will be necessary in the provision of services. For further updates, BBC Nottingham can be followed on Facebook, X, or Instagram. Story submissions can be sent to eastmidsnews@bbc.co.uk or via WhatsApp at 0808 100 2210. Copyright 2024 BBC. All rights reserved. The BBC disclaims responsibility for the content of external websites. Information regarding our external linking policy is available for review.