Kirklees Council: What would happen if authority declares effective bankruptcy?

If the council’s Chief Financial Officer thinks the local authority cannot balance its budget within the financial year, they must issue a Section 114 notice. This puts a stop to all new spending with a few exceptions. These include funding statutory services, safeguarding vulnerable people, paying staff and honouring existing contracts.

After the notice has been issued, a council has 21 days to meet and discuss their next steps. The issuing of a notice also gives the government the power to intervene in the running of council services.

According to parliament.uk, councils facing a Section 114 have a number of options. It is explained that previously, local authorities in this predicament have passed amended budgets that reduce spending on services.

Other options include seeking “capitalisation directions” from the government, meaning that special permission is given to a council to use its capital funds like selling property to fund services. A council can also reduce its statutory duties, decreasing the number of services they provide.

Kirklees Council is currently looking at an overspend of £20.3m on its £380m budget for this financial year. Last month, Chief Executive Jacqui Gedman wrote to council staff explaining that up to 750 redundancies were on the way and that the council needs to make an in-year saving of £47m to balance its books.

It has now come to light that 250 members of staff will be made redundant between October and March, and last week, the cabinet approved some additional steps to save the local authority some cash and help it make the necessary level of savings to avoid the issuing of a Section 114.

All non-essential spending has been frozen, as has recruitment, with a review to take place of roles that were previously regarded essential. On top of this, all discretionary fees will be increased by “at least the prevailing rate of inflation” where possible, and the council will speed up the sale of buildings it’s looking to dispose of.

At the cabinet meeting last week where the money-saving measures were agreed, Leader of the Lib Dem group, Cllr John Lawson (Cleckheaton), said: “It’s apparent that we are fast approaching the self-imposition of a de facto section 114 in our spending.”

In response, Coun Graham Turner, Cabinet Member for Finance and Regeneration said: “It is our belief and our desire that we will not need to issue a section 114 if we can deliver the savings that we’re planning to do so…

“This cabinet will do everything it can to avoid issuing a section 114 notice. We will work with our unions, with our staff and residents to deliver the savings to get on a financial footing that’s affordable within the budget envelope we currently have.”