Another UK city runs out of money

All local government spending, except for on essential services, has come to a halt in the English city of Nottingham after councilors declared the city effectively bankrupt, the latest in a string of financial collapses to hit regional authorities across the United Kingdom.

The city, in the East Midlands region, has a population of around 750,000 and its city council is divided into 20 wards, which are represented by 55 councilors. The Labour Party currently holds 50 of those council seats.

There had been warnings for some time that the council was in financial trouble, and after a recent report said it was going to overspend by 23 million pounds ($29 million) for the current financial year, what is known as a section 114 notice under the Local Government Finance Act 1988 was issued.

This states that the council cannot meet its legal requirement to have a balanced budget and must halt immediate spending and requires a meeting be held within the next 21 days to address the issue.

The council specifically identified increased demands on children's and adults' social care, inflation, and a rise in homelessness as having put it under particular financial strain.

Before the final step was taken, council leader David Mellen and Chief Executive Mel Barrett had sent stakeholders a letter warning of the likelihood of cuts and telling them about what lies ahead.

"It will be increasingly difficult for us to continue providing the full range and standard of services we currently deliver," the letter said. "Given the scale of the challenge, it is inevitable that there will need to be reductions in service provision or withdrawal in some areas, subject to decisions made by councilors, which may impact on our partners and our citizens."

Contributory factors that the letter also acknowledged included historic unlawful use of the council's Housing Revenue Account Funding to support its wider finances, and the failure of a council-run energy supply company, Robin Hood Energy, which cost taxpayers 38 million pounds.

Nottingham is now one of 13 local authorities to have issued a Section 114 notice since 2018, including, most famously, Birmingham, the largest local authority in Europe.

But speaking to the Local Democracy Reporting Service, Mellen rejected the suggestion that the situation was down to wasteful management and warned that more councils were likely to follow suit unless drastic action is taken by the central government.

"Councils are using their reserves in greater value than us this year to solve their budget problem, and unless the government comes forth with proper funding of social care, they will be in problems next year," he said. "This is a national thing where local government is being starved of resources."

Stephen Houghton, chair of the Special Interest Group of Municipal Authorities, told the Housing Today website that the "epidemic of S114 notices" shows "the funding model is completely broken".

"There are fundamental systemic issues with the local government finance system that have resulted in an increasing number of councils reaching breaking point," he added.