Urgent government intervention needed to avoid financial collapse and Section 114 notice

Stoke-on-Trent City Council is teetering on the brink of financial collapse, with warnings that a bankruptcy declaration may soon follow unless urgent government intervention occurs. A report has revealed that the council might be forced to issue a Section 114 notice, which would freeze all new spending except for essential services.

The council’s finances have been stretched thin due to growing demands for services, particularly in social care and children’s services. The budget for 2023-24 shows a substantial shortfall of £8.5 million. The council is calling on the government to provide immediate funding support to prevent further deterioration, along with hopes for reduced inflation or lower service demand.

A Section 114 notice, which has been used by other councils like Croydon and Thurrock, signals that a local authority is in financial crisis, unable to balance its budget. If enacted, all non-essential expenditure would cease, with only statutory services and commitments to vulnerable groups continuing.

Since the council set its budget for the current year, inflationary pressures and the escalating demand for personalised services, particularly for children in care, have compounded the financial gap. This has led to an initial £13 million shortfall, later reduced to £8.5 million through “budget management actions.”

The rise in children needing care has been particularly notable, with the number of children in care soaring from 653 in 2017 to 1,120 in July 2023. The cost of children’s social care has also nearly doubled, from £44.3 million in 2016-17 to £92.4 million this year, compounded by inflation.

The city’s underlying financial weaknesses, including high deprivation levels, a vulnerable council tax base, and insufficient reserves, have made the situation even more precarious. The council is now finding it increasingly difficult to make further savings, with the majority of its budget already allocated to essential services.

Without additional financial assistance from the government, the council faces a significant risk of needing to issue a Section 114 notice. Discussions with the Department for Levelling Up, Housing and Communities (DLUHC) are ongoing, and a follow-up report will be presented to the council’s cabinet later this year.

Councillor Alastair Watson, responsible for finance, said, “We are spending more than we can afford, and the situation is unsustainable. If we are unable to provide our services, it’s the system that’s broken, not local government. We are urging the government to act swiftly and decisively.”