What is a Section 114 notice and how does it impact Slough Borough Council

James Bagley. Local Democracy Reporter

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Slough Borough Council HQ, Observatory House, Windsor Road, Slough

Slough Borough Council’s financial crisis has prompted it to officially announce it have gone bust – but what does that mean?

In an effort to fix their depleting finances, the Labour-run council has today announced it has issued a section 114 notice.

While local authorities technically cannot declare bankruptcy, this notice to government indicates that the council does not have enough funds to deliver or balance its budget.

This has cemented the council’s ongoing financial crisis it is facing as unresolved.

Slough has become the third local authority to declare a section 114, following the footsteps of Northamptonshire County Council in 2018, and Croydon Council last year.

First of all, what is a section 114?

What this effectively means is Slough Borough Council cannot spend any money except on essential and statutory services, such as adult social care and children’s services until July 22 at the earliest.

This is triggered if a local authority cannot balance its budget, mainly due to borrowing debt and/or overspending.

How did the council get into this situation?

In the council’s announcement, it has stated it 'dedicated' a lot of resources in the past year to deal with the enormous strain of the COVID-19 pandemic, including a reduced collection of council tax and business rate collections.

However, this year has not boded well for the council.

During the budget-setting process, the local authority had to request ‘capitalisation directive’ of up to £15.2 million, which effectively gives them greater flexibility to use capital funds in order to fill a £10 million black hole in current finances.

In order to plug this gap, this may mean the council could sell off some of its £100 million worth of assets.

This gap in funds was caused by two one-off payments, including a tribunal ordering the council to repay a business in the town £5.2 million in business rates because it wasn’t issued a valuation certificate correctly in 2010.

Another hefty payment was the £5.5 million deficit in the Slough Children’s Services Trust as Slough Council took control of the independent company earlier this year.

Steven Mair, SBC’s new finance officer, said without this £15.2m, the council not be able to balance its budget.

It also comes after two damning audit reports in the council’s 2018/19 accounts, published by Grant Thornton LLP, that found the council had insufficient capacity and skills within the finance department, inadequate preparation of financial statements, inadequate general and earmarked revenue reserves, and inadequate governance, monitoring, and controls over outside groups and companies.

The reports revealed the council’s general fund reserves had fallen by more than £7.5 million to a mere £550,000 at the end of 2018/19.

Over the years, borrowing to fund capital projects has quadrupled from £180 million to a whopping £760 million.

Mr Mair warned councillors there could be a £159 million black hole in the general fund by 2025 if further action is not taken.

What is the impact of a section 114 notice?

This notice will mean non-essential services that are not statutory will have their spending frozen until SBC becomes financially stable.

A new s114 notice must be issued every 21 days if the books aren’t balanced within that time period.

A daily spending control panel will be set up to monitor the council does not spend on things that are not essential.

According to the council’s chief executive, Josie Wragg, the following services will continue to be delivered:

Waste collection;
Education services;
Children’s and adults’ social care;
Public health services;
Planning and housing services;
Road maintenance;
Library services.
It is not known yet which non-essential services could be axed or see funding drained.

This will also mean SBC cannot enter into new agreements with outside companies to carry out services or other work.

Reviews of areas where the council could make savings will be considered – and Ms Wragg said 'rigorous' spending control measures will be implemented and operate until the end of March 2022.

The council will also be assessing its borrowing for capital projects in hopes to reduce it and its debt.

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