Experts claim 12 councils in cash crisis talks with Whitehall

Around 12 local authorities are currently in discussions with Whitehall to prevent them running out of cash, according to a leading finance expert.

Speaking in front of the homes, communities and local government committee yesterday (8 February), the chief executive of CIPFA, Rob Whiteman said he understands 12 authorities are in discussions with the Ministry of Housing, Communities and Local Government, who are ‘in or around a Section 114 position’.

When a council issues a Section 114 notice it halts all new non-essential spending in an effort to balance the books.

Local authorities which cannot balance the books can ask Whitehall for a capitalisation order, which would allow the use of capital funds or borrow against capital assets for revenue purposes.

This normally goes against accounting procedures, but ministers can make exceptions in certain circumstances.

Croydon Council, which is in dire financial difficulties, issued a Section 114 notice last year.

‘I think six authorities have now agreed with the department what a capitalisation order might look like,’ said Mr Whiteman.

‘And the other six are having ongoing discussions.’

‘One could say 12 authorities being in that crunch point is not a lot for the whole sector,’ he added.

‘I think personally there are more than 12 authorities that are likely to get to that position in the next year or two if some of the issues that we’ll talk about today, loss of income, difficulties with the tax raising base, as well as surface service pressures are not resolved. So, I think 12, probably is the tip of the iceberg.’

Also appearing in front of the committee was the chair of the Local Government Association’s resources board, Cllr Richard Watts, who said councils have seen a £15bn reduction in core funding since 2010 while facing increased demand for its most expensive services, like social care.

In response, an MHCLG spokesperson said: ‘The government has allocated over £8bn directly to councils since the start of the pandemic, including £4.6bn which is not ring-fenced and £1.3bn specifically to support social care providers.

‘Next year we’re giving councils access to an additional £2.2bn to deliver services and £3bn of additional support for Covid-19 pressures. This takes the total support committed to councils in England to tackle the impacts of Covid-19 to over £11 billion.

‘We are having conversations with a small number of councils around additional financial support and we cannot comment further at this stage.’

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