What does it mean when a council goes bankrupt? Earlier this week, Birmingham City Council did effectively that, issuing a Section 114 notice.
Birmingham’s Council serve Europe’s largest local authority, with more than 1.1 million people under their jurisdiction. The news that they are unable to meet their spending commitments this year is therefore a huge concern to the whole UK.
If you’re unsure about what happens if your local council goes bankrupt then read on. We’ve broken down exactly what it means for you if your local authority declares a Section 114 notice.
Which Councils have declared Section 114?
The most recent council to declare effective bankruptcy under Section 114 was Birmingham City Council earlier this week. Prior to this, six other local authorities issued a Section 114 notice. Hackney Council was the first to do so back in 2000, followed by Northamptonshire in 2018, Slough in 2021, Thurrock and Croydon in 2022 and Woking in June of this year.
Local councils across the UK have been reporting growing financial problems. Now, more than 20 other local authorities are at risk of following Birmingham.
What is Section 114?
While it’s often colloquially referred to as ‘bankruptcy,’ a council declaring Section 114 is technically an acknowledgement that they cannot meet their spending commitments. It’s a clear sign of financial problems, but it can also be a first step towards fixing the situation.
Freezing all spending (with exceptions)
Once a council declares Section 114, they must freeze all spending immediately. This includes pausing any new initiatives or projects. However, there are some exceptions in place to safeguard vulnerable individuals and honour existing commitments. Essential services, like rubbish collection, will continue without disruption.
Revising budget plans
So, what happens if your local council declares Section 114? There won’t be any immediate changes to your day-to-day life. The council will place a hold on new spending, but essential services will continue as usual. However, behind the scenes, your council will be hard at work revising their budget plans.
To correct the shortfall in their budget, the council will need to restructure their plans. This can mean making tough decisions such as cutting back on certain public services and cancelling upcoming projects.
These decisions are carefully considered in order to minimise the impact on residents. In some cases, your Council will hold public forums to allow the community to discuss where funding should be allocated.
Selling assets when a Council goes bankrupt
Councils which make a Section 114 declaration can also seek permission from the government to sell off some of their assets, such as land or real estate. This generates extra revenue, which can help bridge the budget gap.
Again, the goal when choosing assets to sell is to minimise the impact on the community.
What should you do?
Your initial reaction when your council goes bankrupt may be panic, but, it’s important to remember that declaring Section 114 is a tool to steer the council back toward stability. The aim is to find a long-term solution, where the Council can support a thriving local community within their budget.
There’s no action required from you when your council declares Section 114, but if you’re interested you can join the local conversation on how the budgeting issues will be resolved.
The important thing to remember is that essential services like schools, waste collection and road maintenance will continue even as the council works on their new budget.
Read more about councils in the UK:
- How to reclaim Council Tax when you move home
- Council Tax – how to register
- Are you paying too much Council Tax?
- What does Council Tax pay for?