One in ten SIGOMA councils facing Section 114 notice

Posted on August 29, 2023

One in ten SIGOMA councils are considering making a Section 114 notice, a new report can reveal.

A council with no prospect of meeting its existing budget will issue a “Section 114” notice. This is a statutory trigger issued by the council's Chief Finance Officer which prevents all new authority spending with the exception of spending for statutory purposes and highlights that the council is not able to achieve a balanced budget for the year. Councillors must meet within 21 days of the notice and produce a budget that then makes the cuts necessary to local services to reduce spending.

A recent survey by SIGOMA, (the Special Interest Group of Municipal Authorities representing 47 urban authorities in the northern, midlands and south-coast regions of England), which looked at the state of their local councils’ finances, found that ten per cent of members were considering making a Section 114 (S114) this year, while close to 20 per cent said it could be possible in the next year.

Many councils said this was the first time they were having to consider these drastic actions due to their lack of cash reserves to balance the current year’s budget.

Councils highlighted that the most common cause of pressure was demand for children’s social care. Our members have called for the government to treat this service with the same importance as adult social care and provide additional grant funding.

Inflation, energy costs and wage rises were also significant factors, with the situation set to get worse as high-interest rates will soon begin to impact as existing loans mature, bringing more financial pressure.

This increase is despite changes to guidance in 2020 by Chartered Institute of Public Finance and Accountancy which gave authorities the ability to raise their financial distress with the Department for Levelling Up, Housing and Communities (DLUHC) before issuing a notice. Since 2020, 16 councils have received exceptional financial support from DLUHC, with seven announced this year.

Cllr Sir Stephen Houghton, Chair of SIGOMA, said: “The Government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last twelve months. At the same time as inflationary pressure, councils are facing increasing demand for services, particularly in the care sector. Pay increases are putting substantial pressure on budgets, and so the government must ensure that local authorities have the additional funding they need to fully fund these pay increases or risk impacting future service delivery.

“The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.

“The government should provide additional in-year funding to relieve inflationary pressure, including for the pay deal this year. This additional funding should also be targeted toward children’s services, which is the greatest area of pressure for our members.

“Councils are facing severe uncertainty - the government must deliver clarity on funding in the coming years, including on proposed reforms that are long overdue."

Read coverage of our survey below: