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