1. A section 114 notice is issued under the Local Government Finance Act 1988.1Local Government Finance Act 1988, s 114, accessed 5 September 2023 This act regulates the financial management and control of local authorities in England and Wales.
2. Section 114 (3) of the act states that:
3. “The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.”
Statutory duty for Chief Finance Officer (CFO)
4. A section 114 notice is a legal measure that a local authority can use when it is unable to balance its budget for the current or upcoming financial year It is issued by the chief finance officer (CFO) of the council, who has a statutory duty to ensure that the council’s expenditure does not exceed its available resources. This is an independent decision by the CFO and does not require councillors’ consent.
5. Contrary to media portrayal, issuing a s 114 notice is not equivalent to declaring bankruptcy, as local authorities in the UK cannot go bankrupt.2Sandford M, ‘What Happens If a Council Goes Bankrupt?’ , accessed 5 September 2023
6. The notice means that the council must stop all non-essential spending, except for the provision of statutory services and the protection of vulnerable people.
7. Once a section 114 notice is issued the council must convene a full council meeting within 21 days to discuss the notice and agree on a plan to address the financial situation.
8. Historically, councils have responded by passing amended budgets that reduce service spending, as seen in cases like Northamptonshire (2018) and Croydon (2020)
9. Some councils have sought special permissions known as ‘capitalisation directions’ from the Government to use capital funds for service spending.
10. While the Government has the power to intervene in how council services are run, this is not automatic upon the issuance of a s 114 notice.
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