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As the waste management and recycling industry grows rapidly in response to environmental concerns, RMP look at the significant risks to local authorities, their staff and or contractors, and members of the public.
Section 114 Notices
Introduction
On 5th September 2023 Birmingham City Council issued a Section114 Notice. This decision was made as the local authority anticipated a disparity of approximately £87 million between its income and projected expenditure for the financial year.
They are by no means the first authority to issue a Section 114 Notice and are unlikely to be the last in the current financial climate with one report suggesting that nearly one in ten local authorities in England fear becoming insolvent in the preceding twelve months period.
Although there may be a tendency amongst sections of the media to use words such as ‘bankruptcy’ during such events, local authorities cannot become bankrupt as commercial enterprises or individuals can. Instead, they utilise a Section 114 Notice, which is a report from the authority’s Chief Finance Officer indicating that they anticipate engaging in expenditure that is deemed unlawful under the Local Government Finance Act 1988.
This unlawful expenditure can occur due to various reasons, but the main cause for issuing a Section 114 Notice is when authorities project that their expenses will surpass their income for a specific fiscal year, which is prohibited by the 1988 Act. In these circumstances, the Chief Finance Officer maintains a statutory duty to act.
Once the Chief Finance Officer issues a Section 114 Notice, the authority is prohibited from initiating new expenditures unless authorised by the Officer. Subsequently, the authority’s leadership must convene a meeting within 21 days of the notice being issued to deliberate on strategies for aligning expenditure with available funding. Elected members, officers, and central government representatives will explore various alternatives to balance the budget for the year.
In the case of Birmingham City Council, the local authority was forced to agree to a package of ‘devastating’ cuts to services and a 21% rise in Council Tax over two years in order to return to a balanced budget.
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