Middlesbrough Council to apply for Gov bailout to avoid bankruptcy
Last updated 11th Jan 2024
Middlesbrough Council will apply for emergency support from the Government to avoid effective bankruptcy.
Leaders have had warnings if a bailout isn't appoved then a section 114 notice will have to be issued - this means Middlesbrough Council becomes the latest around the UK to declare itself effectively bankrupt.
The authority is legally required to set a balanced budget by March 11 but it faces a £6.3 million gap in 2024/25, despite proposed savings and a council tax increase, rising to £8.2 million in 2026/27, a financial report on the council's website shows.
If any further cost-cutting measures and the Local Government Finance Settlement are insufficient to plug the deficit, council officials - if approved by the executive - will make an application to the Department for Levelling Up, Housing and Communities (DLUHC) for exceptional financial support by mid-January, the report states.
If the department refuses the request or offers too little cash, a section 114 notice will be issued.
A Middlesbrough Council spokesperson said: “The council has launched a public consultation on £14m of budget savings proposals to recover its financial position.
“The council has for too long been spending more than its income to meet rising demand and the pressures of high inflation, but it can no longer fund this shortfall from its reserves and must reduce overall costs.
“Work on a transformation programme to reduce spending and deliver better service outcomes is under way but given its scale and complexity, it will not be fully developed in time to achieve a balanced budget for 2024/25.
“The provisional local government finance settlement in December 2023 was broadly in line with forecasts and brought no new resources above those already planned for. As a result, a budget shortfall of around £6.3 million remains for 2024/25.
“On Wednesday January 17, the Executive is being asked to support an application to the Department for Levelling Up, Housing and Communities (DLUHC) for Exceptional Financial Support and discussions are already in progress with officials.
“If approved by government, it would then be voted upon by the full council.
“Exceptional Financial Support allows the council to borrow in the short-term to support its financial recovery and balance its 2024/25 budget.
“The council is taking this decision in order to seek to avoid the more severe consequences of issuing a Section 114 notice, which have been issued recently by other local authorities, but that risk remains if a balanced budget cannot be achieved by the statutory deadline of March 11.”
Middlesbrough is the latest council facing a major funding shortfall.
Nottingham City Council declared itself effectively bankrupt in December while Birmingham City Council issued a section 114 notice in September.
Rishi Sunak in December accused Middlesbrough Council of "mismanaging" its finances as he faced questions about the pressures on cash-trapped local authorities.
The Prime Minister put the blame squarely on Labour councillors although they have pointed the finger at the Independent-Conservative administration that ran the authority until May 2023.
Conservative former Cabinet minister Sir Simon Clarke and Tees Valley'sTory Mayor Lord Houchen last month called for the Government to send commissioners to take control of Middlesbrough Council.
The spate of crises facing local authorities has prompted concern about the provision of public services for local communities.
Metro mayors from West Yorkshire, Greater Manchester, Liverpool and elsewhere have urged Local Government Secretary Michael Gove to provide extra finance for struggling councils.
A DLUHC spokesperson said: "Councils are responsible for the management of their own finances, and it is right they take the necessary decisions to manage their position, but we remain ready to talk to any concerned about its financial position.
"We recognise councils are facing challenges and that is why we have announced a £64 billion funding package to ensure they can continue making a difference, alongside our combined efforts to level up."