S 114 – (1) CIPFA’s approach

November 26th, 2020 by Peter Oldham QC in Capital Finance and Companies, General, Judicial Control, Liability and Litigation, Local Authority Powers

This is the first of a short series of posts about s 114 of the Local Government Finance Act 1988. They look at (1) CIPFA’s approach announced in June 2020, (2) the s 114 notice in Croydon and (3) yesterday’s Treasury response to consultation about PWLB lending terms.

Under s 114(3) of the LGFA 1988:-

114(3)     The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.

In the light of the pandemic, and its impact on LAs’ finances, CIPFA put out this statement in June 2020 – and note the words “due to COVID-19” which I’ve put in bold, and whose significance I will pick up in my next post:-

“The role of S.114 in the current crisis has been the subject of understandable debate. This statement confirms that the statutory responsibilities of the CFO has not changed. However, CIPFA proposes that there should be a temporary modification to existing guidance in order to create an opportunity, within existing statutory limits, to enable an exploration of what further options and/or financial assistance may be available.

The proposed modifications are as follows:

  • At the earliest possible stage a CFO should make informal confidential contact with MHCLG to advise of financial concerns and a possible forthcoming S.114 requirement
  • The CFO should communicate the potential unbalanced budget position due to COVID-19 to MHCLG at the same time as providing a potential s 114 scenario report to the council executive (Cabinet) and the external auditor

In practice this means it should not normally be necessary for a s.114 report to be issued while discussions with the government that would address the issue are in progress.

It is important to note that this modification does not change the statutory responsibilities of S.151 officers.

Where there is any doubt the CFO should of course revert to the statutory requirements of S.114.”

Rob Whiteman, Chief Executive of CIPFA, was quoted on Room 151 as follows on 23rd June 2020:-

“These temporary changes are designed to facilitate dialogue between local and central government. Prior to these changes, difficult conversations remained both internal and informal, and councils were able to issue notices without involving central government beforehand. Due to current pressures, this can no longer be the case.

The additional breathing room created by these amendments should ensure that more finance directors are able to meet their statutory responsibilities, while avoiding a premature S.114 notice, and the resulting freeze on local spending that inevitably follows.

The modifications do not change the statutory duty of the Section 151 officer. Our hope is that they support local authorities to impress upon government both the urgency of the need for additional funding to deal with the current crisis, as well as the thorny issue of local government funding in its entirety.”

Private Eye ran the following story in early summer 2020:-

“According to a senior figure in local authority finances, the local government ministry feared that if one council issued a S114 notice, many others would swiftly follow. They said that Robert Jenrick’s Ministry of Housing, Communities and Local Government, “…could cope with one or two S114 notices, but they wouldn’t be able to deal with 20 or 30”.”

CIPFA’s guidance was aimed at putting a buffer between LAs and the need to issue a s 114 notice, by strongly encouraging LAs to talk to the MHCLG “at the earliest possible stage”, as those discussions might “address the issue”.  But it made clear that – as was of course the case – this approach did not, and could not, alter the s 151 officer’s duties under s 114.

Peter Oldham QC

 

State Aid during Covid-19

July 8th, 2020 by James Goudie QC in Capital Finance and Companies

Brexit notwithstanding, the UK remains subject to the EU State Aid regime administered by the EU Commission. On 19 March 2020 the Commission adopted a “ Temporary Framework “ for State Aid measures to support the economy during Covid-19 (the TF). The TF was amended on 3 April and 8 May 2020. A feature of the TF was that aid was not available for undertakings already in financial difficulty by 31 December 2019.

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State Aid

May 13th, 2020 by James Goudie QC in Capital Finance and Companies

Case T-8/18, easy jet Airline Co Ltd v EU Commission, General Court Judgment, about airports in Sardinia, addresses a range of features of State Aid law, including state resources, selective advantage, distortion of competition, affecting trade between member states, and compatibility with the internal market, and, from para 169, especially at paras 185, 200-203, 212 and 218, the Market Economy Operator Principle.

 

COVID-19 Response

April 15th, 2020 by James Goudie QC in Capital Finance and Companies

A series of documents, updates and questions and answers have been issued regarding the 2014-2020 European Structural and Investment Funds Programme and the response to COVID-19, and appear on the MHCLG website.

 

State Aid

April 6th, 2020 by James Goudie QC in Capital Finance and Companies

The House of Lords EU Internal Market Sub-Committee record that the Government lacks a clear understanding of what State Aid provisions it signed up to in the Protocol on Ireland/Northern Ireland, that the details of its subsidy control regime remain unknown, and that the role of the CMA in the future subsidy control framework remains uncertain.

 

Public Works Loan Board (“PWLB”)

March 16th, 2020 by James Goudie QC in Capital Finance and Companies

HM Treasury has published a consultation document on “Future Lending Terms” fpr the PWLB. The Foreword states (emphasis added):-

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Borrowing

February 25th, 2020 by James Goudie QC in Capital Finance and Companies

Following Consultation in 2016, the Public Works Loan Board (“the PWLB”) has been abolished by the Public Bodies (Abolition of Public Works Loan Commissioners) Order 2020, S.I. 2020/176.

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Pooled Investments and Accounting

February 4th, 2020 by James Goudie QC in Capital Finance and Companies

A new Regulation 24K has been added to the Local Authorities (Capital Finance and Accounting)(Wales) Regulations 2003, providing that a Welsh local authority must not charge an amount in its revenue account to reflect any fluctuation in the fair value of an investment in a pooled investment fund. Rather, such amounts must be recorded in a separate account, established, and used solely, for that purpose. This corresponds with Regulation 30K of the English 2003 Regulations, inserted in 2018.

 

State Aid

January 20th, 2020 by James Goudie QC in Capital Finance and Companies

In Case T-257/18, Iberpotash S.A. v European Commission, CJEU General Court Judgment on 16 January 2020, the first issue was whether there was a transfer of State resources.  The Court said:-

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Companies: General meetings and torts

April 9th, 2019 by James Goudie QC in Capital Finance and Companies

In Schofield v Jones (2019) EWHC 803 (Ch) the Court exercised its power under Section 306 of the Companies Act 2006 to direct the holding of a Company General Meeting with a quorum of only one. The purpose of the Meeting was to remove one of two members as one of four Directors. That Director was alleged to be in breach of fiduciary duty and had lost the confidence of the other Directors.  That Director can and had thwarted the holding of a General Meeting by not

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