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As quoted by the Guardian and a local news website, Woking borough council is on the verge of bankruptcy (due to failed investments and financial mismanagement.) To put in context how much debt the council has, several West African countries have smaller external debts than this small district council (Togo - $1.17 Billion, Guinea - $1.33 Billion, Woking Borough Council - $2.2 Billion (Estimated, March 2023))

It has been suggested that the borough council may have to give a section 114 notice to the (central) government, which in layman’s terms means that central government can intervene to make sure the council still delivers the services it provides, but what does this actually mean?

Would central government intervention in a local council mean paying for services, changing leadership, requesting an inquiry of some sort, or even giving some sort of emergency grant to the council in order to provide their services?

How would national government, in the UK, intervene when a local government borough declare bankruptcy?

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  • @ItalianPhilosophers4Monica I’ll be honest that I’ve never heard of there being specialist bankruptcy administrators for local government, especially as it is a very rare occurrence (As far as I’m aware, there are only 2/3 other councils that have come close to declaring that they’re bankrupt)
    – Boolean
    Mar 24 at 21:47
  • The linked article literally says that bankruptcy doesn't apply ?! This makes sense; companies and other similar entities can cease to exist. A council can't be disbanded in bankruptcy.
    – MSalters
    Mar 24 at 23:26
  • @MSalters depending on jurisdiction, a bankruptcy can have another effect as well, wiping the slate clean on debt. so a council not being treated the same is a two-edged sword.
    – Italian Philosophers 4 Monica
    Mar 25 at 3:19

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Section 114 is often described as "bankruptcy", but legally it is different.

It is a notice that the Finance Officer of the council makes (without requiring the consent of the councillors). It prevents the council from making new spending commitments and requires that the council meet to make plans.

Generally these plans are to cut discretionary services.

Alternatively, the council can apply to central government for access to capital assets that they could not otherwise use. These are assets such as capital funds or property that are sold to fill the gap. This could mean, for example selling allotments for property or liquidating investments. This converts capital into revenue - but requires permission from central government, since the councils are not fully sovereign in this.

Another option is for the council to apply to central government for a reduction in the statutory services it provides. The council would then cease these services. Central government would then take over these services. In the extreme case, all functions of the council could be transferred to central government, though nothing remotely like this has ever happened. The closest was the request from Kent and Hampshire for child and adult social care (a statutory duty) to be fully funded by central government, essentially transferring this duty from the council to Westminster.

Sources:

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  • Note also that the failed council may be abolished altogether and its powers and responsibilities transferred to existing or new councils. This happened to Northamptonshire County Council in 2021, and it no longer exists.
    – Mike Scott
    Mar 25 at 9:36
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    Northhamptionshire had more problems than a shortage of revenue. It was a chronic failure of a range of child and vulnerable adult services that led to it being split.
    – James K
    Mar 25 at 20:38

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