Havering’s Financial Crisis Is Not What Many People Think
With continued public debate around Havering Council’s finances and calls for a Section 114 notice, Councillor Gillian Ford has written in The Havering Daily to explain the financial challenges facing the borough, the pressures caused by rising demand for statutory services, and why the Havering Residents Association did not support calls for the Council to effectively declare financial insolvency.
Havering Residents Association raised concerns from the start of 2022 about the financial position Havering Council found itself in.
The HRA publicly highlighted the growing pressures within social care. These pressures on local authorities are recognised nationally, which is why the Government appointed Baroness Casey to undertake a national review.
As Havering has the second oldest population in London and the fourth highest growth in children and young people in the UK, our services are under significant pressure. We have also seen a steady increase over recent years in the complexity of need.
Much of the financial pressure is due to statutory provision, including adult social care, children’s services and homelessness support. These services must be provided by councils — they are not optional.
Alongside this, a shortfall in funding coming into the Council has resulted in demand outstripping income and an increasing budget deficit.
As an Administration and Council, we lobbied the Labour Government and secured an additional £37.7 million over ten years. However, with a budget deficit of around £70 million, it is clear this uplift does not fill the gap. Different options therefore have to be constantly considered in order to balance the books.
You will have heard about local authorities that made poor investments and lost funding (with no reserves available to recover the losses), as well as councils that failed to maintain robust oversight of their budgets. That is why the Government introduced Section 114 powers under the Local Government Finance Act 1988.
A Section 114 notice is effectively the equivalent of a council declaring financial insolvency or “bankruptcy”. Importantly, only the Chief Financial Officer, known as the Section 151 Officer, can issue a Section 114 notice — not the Council or councillors.
Havering Council has not made poor investments or mismanaged its finances, which was confirmed by the most recent CIPFA (Chartered Institute of Public Finance and Accountancy) report. In fact, the report stated that Havering simply does not have sufficient income to meet rising demand. Even OFSTED (Office for Standards in Education, Children’s Services and Skills) made the unprecedented step of highlighting Havering’s lack of resources.
We then need to consider what difference a Section 114 notice would actually make if the Chief Finance Officer believed it appropriate, and what would happen next.
A Section 114 notice could restrict or stop all services other than statutory services. It would require a formal recovery programme and could result in Government-appointed commissioners taking control of the Council at substantial cost to local taxpayers.
Those commissioners would remove local democratic decision-making powers from councillors. They could also sell council assets without local debate or public engagement in order to reduce the financial shortfall, and they could remain in place for several years.
The alternative option available to councils in Havering’s position is to apply for Exceptional Financial Support (EFS). This is effectively a Government loan, with interest payable. To secure EFS, councils must provide detailed evidence of their financial position, demonstrate the savings measures already implemented, and submit a credible delivery plan.
Havering’s Chief Finance Officer has not issued a Section 114 notice to date. Councils that have issued one, but still had no way of closing their budget gap, were ultimately required to apply for Exceptional Financial Support anyway.
The HRA saw no benefit in a Section 114 notice being issued, as it could remove all local decision-making powers and create the possibility of community assets being sold without discussion or public engagement — only for residents to then be told the Council still had to take out a Government loan regardless.
In many cases, councils operating under Section 114 arrangements have also seen pressure for council tax rises above the usual 5% threshold.
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