Sheffield council leader addresses ‘bankruptcy’ fears amid huge funding challenges

Last December, a survey found that almost one in five council leaders and chiefs think they may need to issue a section 114 “due to the lack of funding”.

This came following the two most recent cases when Birmingham City Council (September 2023) and Nottingham City Council (November 2023) basically had to report bankruptcy.

Some considered Sheffield City Council a potential next in line.

At a Finance Committee meeting in December, councillors have expressed their worries over the budget pressures, with Sheffield City Council facing a £17.4m shortfall with only £13m in reserves to help bridge the gap.

Councils must by law achieve a balanced budget, failure to do that means they have to issue a section 114 notice.

In an interview just before Christmas, Cllr Tom Hunt, the leader of Sheffield City Council, told the Local Democracy Reporting Service that the council was “not in that territory”.

He said: “We’re not in that territory. However, there can be no complacency. We’re facing significant challenges – inflation is still an issue for us, demand and prices are rising, and support from the central government isn’t there…

“But I can reassure residents of Sheffield that we’re not in the territory other councils (that have or are about to issue a section 114 and effective bankruptcy) are in.”

Would he resign and take the responsibility if they ended up issuing one, though, he was asked?

He said: “We’re not in that territory and I’m not going to speculate on hypothetical situations.”

He added the government should treat the councils as partners but “they don’t”.

Cllr Hunt said: “Since 2010, we’ve had 13 years of being hammered by central government.

“This council since 2010 has lost 29 per cent of its funding – that’s £856 per person. The average across the country is a 20 per cent cut in funding. We’re significantly worse off than the average.”

When he was asked what had happened, he blamed the LibDem-Tory coalition as he said they had “decided to change the funding formula about 10 years ago” and they stripped out factors around deprivation.

Now, Cllr Hunt added more affluent areas (like Surrey) to get more money and “places like Sheffield lost out”.

Cllr Hunt said all the talk around levelling up was “meaningless”.

He also mentioned former prime minister Liz Truss’ and chancellor Kwasi Kwarteng’s “mad budget” as one big factor in why local governments found themselves in dire situations.

However, Sir Keir Starmer, the leader of the opposition in parliament, is reportedly not ready to open the spending taps if he wins the election this year.

So what would be different in funding local governments?

Cllr Hunt said a Labour government would offer a sought-after multi-year deal so local authorities could plan ahead.

He said: “One of the things that would be a real game changer for the way which we do our budget here would be a multi-year funding settlement. At the minute, we’re on a 12-month hamster wheel of never knowing how much money we’re going to have for the next year until right before Christmas.

“That’s no way to set budgets and be able to plan for the medium-term.”

He said this (a potential multi-year settlement) has been mentioned by shadow ministers and in the next few months Cllr Hunt would be making the case for the “urgent need” of that.

Cllr Hunt added there was a warning from economic forecasters that the country may go back into recession.

He said Labour wanted to get the economy growing and when he was challenged that Liz Truss had the same plan, Cllr Hunt added she should’ve consulted before her budget and by not doing so “all of us suffering the consequences”.

Michael Gove, the communities secretary, recently announced a £64bn spending package, a 6.5 per cent increase in the funding for local councils.