Agenda item

A report is to advise Members of the recent Section 114 notices and

associated reports issued by the Chief Finance Officers (Section 151 Officers) at two Local Authorities (the London Borough of Croydon and Slough Borough Council) and provide information on the recent capitalisation directions issued by the Ministry of Housing, Communities and Local Government to support the financial position of several Local Authorities during 2020/21 and 2021/22.

The Committee gave consideration to a report which provided an update on Financial Administration in Local Authorities.

The report advised the Committee of the recent Section 114 notices and associated reports issued by the Chief Finance Officers (Section 151 Officers) at two Local Authorities (the London Borough of Croydon and Slough Borough Council) and provided information on the recent capitalisation directions issued by the Ministry of Housing, Communities and Local Government (MHCLG) to support the financial position of several Local Authorities during 2020/21 and 2021/22.

The Committee were informed that during 2020, the Section 151 Officer at the London Borough of Croydon issued two Section 114 notices which limited the spending of the Council to statutory and contractual items. To balance its revenue budget for the financial year 2020/21, the Council relied on a substantial contribution in respect of anticipated loan interest from its wholly owned Housing Company Brick by Brick. However, the company did not achieve the level of construction it anticipated as per its business plan and was therefore unable to repay the loans and the interest due to the Council in the financial year 2020/21. The MHCLG Select Committee identified that the system for oversight of the partnerships within the Borough was poor and those Members who had a governance role (both Scrutiny and Audit) to hold the Executive to account, did not discharge their duty effectively. Reports presented to Scrutiny by Brick by Brick had key information that was not made available which should have been made available at the insistence of the Scrutiny Committee.

The Committee was also informed that on the 2 July 2021 the Interim Section 151 Officer at Slough Borough Council issued a Section 114 notice for Slough Borough Council. This followed the External Auditor only considering signing off the accounts for the financial year 2018/19 if an adjustment was processed which reduced the agreed level of general balances to £550k. The adjustment related to the Council overstating the income it expected to receive from a joint venture set up for commercial purposes. Such an adjustment impacted on the 2019/20 and 2020/21 accounts which were currently undergoing audit and could be subject to an adjustment which further reduces the level of general balances. The interim Section 151 Officer was of the view that the Council was effectively bankrupt and issued the Section 114 notice estimating that the level of general balances as of 31 March 2021 would be -£56m (a deficit of £56m). Effectively the interim Section 151 officer had identified that the Council did not set balanced budgets for the financial years 2018/19, 2019/20, 2020/21 and 2021/22.

In addition to the two Authorities who have had Section 114 Notices issued by their Section 151 Officer, the MHCLG agreed to capitalisation directions at the Authorities as followed:

•      Peterborough City Council

•      Eastbourne Borough Council

•      The London Borough of Bexley

•      Luton Borough Council

•      Nottingham City Council

•      Wirral Metropolitan Borough Council

•      Redcar and Cleveland Unitary Authority

•      Copeland District Council

The Committee was informed that whilst each Authority had their own unique circumstances, common themes emerged which included a failure to set aside sufficient MRP to cover the cost of borrowing undertaken, setting a budget with a very low level of general balances and poor partnership governance of wholly owned companies. It was suggested to the Committee that liaising with the Audit Committee would ensure adequate oversight of those areas within the Council.

RESOLVED that the report be noted.