Nottingham City Council in central England said it had issued a Section 114 Notice under the Local Government Finance Act 1988, meaning it can now only spend on essential services.
Fears have been growing that other cash-strapped UK councils would follow Birmingham — one of Europe’s largest local authorities — which announced it was struggling financially in September.
Nottingham said it had a £23-million ($29-million) hole in its budget this year, blaming pressures from increased demand for child care and adult social services, rising homelessness and high inflation.
“The council is not ‘bankrupt’ or insolvent, and has sufficient financial resources to meet all of its current obligations, to continue to pay staff, suppliers and grant recipients in this year,” a statement read.
By law, councillors at the Labour-run local authority now have to come up with an action plan to tackle the shortfall within 21 days.
Councils which have previously declared financial distress include Croydon in south London, Thurrock to the east of the British capital, and Woking, to its southwest.
Conservative Prime Minister Rishi Sunak has accused Labour-run councils of “financial mismanagement”, even though several local authorities who have issued Section 114 notices are Tory controlled.
The Institute for Government has said the spending power of local authorities in England — how much they receive in grants from central government, local housing taxes and business rates to provide services– fell by 17.5 percent from 2009-10 to 2019-20.
But despite a partial recovery, in 2021-22 it was still 10.2 percent below 2009-10 levels, assessing that central government funding had been cut by up to 40 percent in the first decade of Tory rule.
The Local Government Association last week said it was “hugely disappointed” that finance minister Jeremy Hunt had not taken action to plug the “huge financial gap” faced by councils across the UK.
Councils needed £4 billion “just to stand still”, said LGA chair Shaun Davies after Hunt’s budget statement.
Jonathan Carr-West, chief executive of the Local Government Information Unit think tank, said Nottingham‘s announcement was “no surprise”.
“We know that around one in 10 councils are at risk of effective bankruptcy. This represents a tragedy for millions of citizens who see the services they rely on at risk even as their bills rise,” he added.