Derby City Council issues statement on bankruptcy position

Derby City Council’s officesDerby City Council’s offices
Derby City Council’s offices
Derby City Council not declaring bankruptcy despite financial woes

Derby City Council is not currently in a position to declare bankruptcy – like other councils have done in recent weeks – despite its financial position being described as “absolutely dire”.

Birmingham City Council, the country’s largest local authority, issued a Section 114 notice earlier this week, basically making itself bankrupt.

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The declaration of a Section 114 notice by a council effectively means it does not have the financial resources to balance its budget, which is a statutory duty.

Issuing the notice means an authority can only spend on essential business to protect core public services and vulnerable people. Other councils have declared Section 114 notices in recent weeks, but Birmingham City Council is the biggest authority so far to fall into financial meltdown.

Council leaders in Birmingham have blamed £760 million for equal pay claims, problems installing a new IT system and £1 billion in Government cuts over the past decade for its financial woes to this point.

It was only a matter of weeks ago when Derby City Council’s chief executive Paul Simpson spoke out about the financial dangers local government finds itself in – calling the picture “extremely challenging” and saying urgent help was needed for the local government sector.

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Mr Simpson spoke out at a cabinet meeting just minutes after city council leader Baggy Shanker said the council’s own financial situation was “absolutely dire”, with its reserve pots down to the bare bones– meaning the council has little cash to fall back on. Alarmingly, this comes at a time of increasing pressures in relation to staff pay, social care and high inflation continuing to play a huge impact on the council’s finances. The Unite union says Derby Homes staff have voted in favour of strike action over pay, adding more pressure on the authority.

Speaking at the start of August, Mr Simpson said: “The situation (at Derby City Council) is indeed extremely challenging. In the context of the national picture, there are two local authorities who today (Wednesday, August 2) have signalled Section 114 reports. Last week there were another five or six. This is now becoming a regular occurrence of local authorities reaching the end of the road.

“That is not to say that’s where we are at, for the avoidance of doubt, but the situation we are facing in local government is an extremely challenging one. I think it is incumbent on all of us – politicians and officers – to do whatever we can to support the need for additional funding for local government. The reality is something needs to happen for local authorities to remain sustainable so we can continue to provide good quality local services that local people and local businesses want and need.”

Providing a fresh update this week on the state of Derby City Council’s finances, the council’s leading finance boss reiterated the council was in a very challenging position but issuing a Section 114 notice was currently not in consideration.

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Alison Parkin, Derby City Council’s director of finance, said: “The council’s position is no different to the rest of the sector and our finances remain very challenging due to rising demand and inflation. We do have plans to mitigate these as much as possible and at this time we are not considering issuing a S114 notice.

“We will be taking our medium-term financial strategy to council cabinet in October, which will outline our plans to balance our budget next year.”

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