COVENTRY City Council has released a frequently asked questions document to ‘clear up confusion’ after news broke it was facing the prospect of a Section 114 notice.
The authority contacted the Observer after speculation grew on social media its financial plight was down to spending millions on cycle lanes.
Is Coventry City Council about to go bankrupt?
“No. What the Council is trying to do is highlight that the way all local authorities are funded needs to be reformed as it is no longer fit for purpose.
“Without any changes, more and more councils – and Coventry is one – will increasingly struggle to meet its requirements to set a balanced budget meaning a section 114 notice might have to be issued in the future.”
What is a Section 114 notice?
“Councils are required by law to have balanced budgets.
“If a council cannot find a way to finance its budget, then a Section 114 Notice must be issued.
“The issuing of a Section 114 Notice restricts all new spending apart from protecting vulnerable people and statutory services and pre-existing commitments.”
Why do you think Coventry deserves to receive more money?
“There is clear evidence that shows that Coventry City Council has been, and continues to be, underfunded.
“The city receives one of the lowest funding per head of the population in the country at £821.
“It is the lowest in the West Midlands (Solihull £825, Dudley £868, Walsall £871, Birmingham £929, Wolverhampton, £939, Sandwell £951) and way below the national England average of £910.
“Additional funding of £17million a year would bring us up to the average national position.
“Added to this, Coventry has seen an overall increase in demand which far exceeds available funding – particularly in areas such as children’s and adult social care.
“Currently, more than 70 per cent of our entire budget is spent just on social care – a rise from 40 per cent in 2010.
“At the same time, Coventry City Council is what the Government has selected us to be a ‘tariff authority’.
“As part of this, £20million from business rates we should receive is removed from our budget every year, despite our obvious need.
“On top of all this, the Council – like all public sector services – has been hit by inflationary pressures.
“The cost of fuel, electricity, gas and other essential things we need to deliver the more than 600 services across the Council has risen unprecedentedly over the last 12 months just like it has for all the residents and businesses we serve.”
But every council will say they need more money, wouldn’t they?
“In Coventry’s case, we have independent evidence that shows we have a compelling case.
“As well as the examples given above, Coventry featured prominently in an independent report published by the Institute of Fiscal Studies in August 2023.
“Within it, the report singles out Coventry as an area whose local government services are underfunded by around £50million based on relative need.”
If you’re not about to issue a Section 114 notice, why are you saying this now?
“As an open and transparent local authority, Coventry is responsibly highlighting an issue it – and a growing number of local authorities of all political colours – are increasingly facing.
“In the past, Section 114 notices have been issued by authorities that have speculatively invested or had a single reason where investments or issues have led to it no longer be able to balance the books.
“Coventry is one of an increasing number of authorities – again of all political colours – that are well-run, cut its cloth in response to reductions in funding (dealing with cuts of more than £100million a year in core funding since 2010 in Coventry’s case) but this huge reduction in funding set against rising demand and inflationary pressures means we are struggling.
“The Council will do everything it can to make sure we do not issue a Section 114 notice.
“Unless the Government provides further financial support to all local authorities to bridge the gap, we are going to have introduce a range of significant proposals that will save money to enable us to meet our legal requirement of setting a balanced budget in the next two years.”
Why are you spending Council money on things such as bicycle lanes, regeneration projects and the work in Spon End if you have no money?
“We are not. What Coventry City Council has been very good at for many years is successfully applying for external funding for specific projects that can only be spent on the schemes the money has been awarded to.
“Projects such as the Binley and Coundon cycles lanes have been paid for by a number of such grants and not from Council Taxpayers’ money.
“Similarly, regeneration projects such as Friargate and City Centre South are almost exclusively funded by such grants.
“This was also the same for the work in Spon End, which incidentally also meant the city did not have a congestion charge imposed that some drivers would have had to pay.
“It is important that we continue this work as it is not costing Council Taxpayers anything but is helping the city meeting its ambitions over being greener, promoting health and wellbeing and promoting economic prosperity or the city – key priorities of the One Coventry Plan.”
Why can’t the Council use its reserves to plug the gap?
“We have already used reserves to bridge the shortfall in the past and may well have to do so again for this financial year.
“But using reserves is not sustainable beyond the very short term and does not provide a sustainable solution in future years.
“You can only spend reserves once and their use buys time but does not resolve the problem.
“There are a number of other authorities across the country that have spent all of its reserves and are now facing effective bankruptcy.
“Ultimately, the problem can only be resolved by a wider reform of the way the sector as a whole is funded.
You’ve invested in a range of businesses in recent years. Have these failed? Is this part of the problem you face?
“No. Our investments in businesses gave us a collective return of 6.5 per cent return on our investments last year.
“This income has been critical in funding frontline services and helping us overcome the lack of funding in previous years.
“Indeed, without it, further cuts to services would have had to be made in the past.
How many other councils are in the same position then?
“It is difficult to say precisely but the number is growing.
“Responses to a recent FOI found that 369 of the 371 councils in England, Scotland and Wales say they were facing a collective £3.6bn hole in their finances for the coming financial year.”
What is likely to happen in Coventry in the next year or so?
“If there is no additional funding from government, Coventry – like many other local authorities – will be forced into taking a lot of difficult decisions.
“This will impact on many Council services given the cost and demand pressures in social care budgets which is more than 70 per cent of our overall spend.
“Due to the pressures we face, we will be consulting on a wide number of savings proposals as part of our 2024/25 budget setting process later this year.”
Ultimately, what is the Council trying to achieve?
“We believe that significant additional funding is required across the local authority sector to meet these pressures which have not been recognised in funding settlements for a number of years.
“We also believe the whole local government funding system needs to be reformed and our allocation does not reflect our level of relative need.
“We are highlighting this and asking for a reform of the funding position to protect our residents from the inevitable large increases in Council Tax bills were a Section 114 notice to be issued and external commissioners appointed to carry out the day-to-day running of the Council.”
