It is arguably no longer a surprise when a local authority declares itself in effect bankrupt. Nottingham city council is the fourth English council in the last 12 months to issue the dreaded section 114 notice, and the sixth in three years. It almost certainly will not be the last.
To loosely paraphrase Leo Tolstoy, each council crashes in its own unhappy way. Woking, Croydon, Slough and Thurrock imploded under the weight of gigantic loans borrowed to fund their various risky commercial investments; Birmingham was dragged down by a huge equal pay liability.
But while it could be argued – and ministers unconvincingly did so – that those councils were outliers, brought down by hubris, spectacular overreach and incompetence, Nottingham looks like the harbinger of a more mundane town hall insolvency, triggered in large part by a cash-starved local government system on its knees.
Nottingham is certainly no beacon of municipal high performance, but there is little sign, at least in its formal section 114 letter, that it is paying the price for overweening corporate recklessness. The message is simple: expenditure, fuelled by inflation and exploding demand for services, exceeds resources, depleted after years of austerity.
Its particular crisis is one faced by scores of other local authorities: child protection costs going through the roof, soaring bills for temporary housing caused by booming homelessness, and an implacably growing need for adult social care services and home-to-school transport.
Nottingham’s predicament does not come out of the blue. Last year it was able to meet its legal duty to balance its books only by drawing heavily on reserves to fill the budget gap. This year it has pushed through yet more cuts and is still forecast to overspend by £23m by April. Draining its last drops of reserves will not cover the deficit.
The council’s chief financial officer, Ross Brown, refers in the letter to the “limited financial control” environment in place at the council when he arrived in January. That will no doubt be rectified over the months to come: expect redundancies, job freezes, more painful service cuts, and possibly asset sales.
There was no mention of the plight of town halls in the chancellor’s recent autumn statement, although subsequent analysis showed the government’s proposed tax cuts would be funded through future cuts to public services, triggering cross-party municipal outrage at this “existential” threat to councils.
In recent months about 20 councils, many of them well run, have publicly warned they may go bust, an unprecedented sign of municipal distress. Some estimates suggest one in 10 of all councils are at risk, including a number of Tory-run “flagship blue counties”. There is little sign that the government sees this as a priority.
Across local government, the mood is ever bleaker. Shaun Davies, the chair of the Local Government Association, said recently: “My concern is that there is a wave of councils that will effectively return the town hall keys back to the government, because there is just no way out of this.”
