Woking Borough Council issues section 114 notice in face of £1.2bn budget deficit

Woking Borough Council has today (7 June) declared effective bankruptcy by issuing a Section 114 notice in response to a budget deficit of more than £1bn and a debt of £1.8bn.

The notice reveals that the council – which is reported to be the most indebted local authority relative to size in the UK – has a deficit of £1.2bn and just £16m in core funding available in the 2023/24 financial year.

Section 114 notices are required if a council can no longer balance its budget for the current financial year or subsequent years. 

The move comes two weeks after the Government sent in Commissioners as part of an intervention package that included a direction to prepare and agree on an improvement and recovery plan.

But in the notice issued today, Woking said the actions envisaged in the emergent recovery plan "will not by themselves resolve the Council's financial exigency".

The council said its position results from an investment strategy "that has resulted in unaffordable borrowing, inadequate steps to repay that borrowing and high values of irrecoverable loans".

According to Government documents, two large commercial schemes - Victoria Place and the Sheerwater regeneration - in the council's portfolio account for the majority of its debt, which the notice said amounts to £1.8bn.

Julie Fisher, Woking Borough Council's Chief Executive, said: "The issuing of a Section 114 Notice is a very serious matter that rightly reflects the scale and breadth of the acute financial situation facing the council."

She added: "Through the commissioning of an independent financial review of the council's borrowing and loans to its companies, we have a comprehensive understanding of our severe financial position which informed the Section 151 Officer's decision to issue a Section 114 Notice.”

Fisher continued: "Following the Secretary of State's appointment of a Commissioning Team, I will be seeking their expertise and using their critical insight to help the council deliver an Improvement and Recovery Plan at pace to ensure we take actions that are in the interests of the public purse. My first report on these actions will be to the Thursday 13 July meeting of the Council's Executive."

Cllr Ann-Marie Barker, Leader of Woking Borough Council, said the notice "makes clear" the scale of the financial challenges which are "so significant that the council cannot simply deal with them on its own".

She stated: "We must work in partnership with the whole of Government and its agencies to support us in delivering a robust Improvement and Recovery Plan.

"I understand the concerns and questions this will raise, and I am committed to maintaining transparency with residents and partners as we progress through this unsettling time.

"Difficult decisions will lie ahead as we seek to balance the council's budget and address the unaffordable debt."

Rob Whiteman, CIPFA CEO, said the s114 notice highlighted the risks associated with borrowing on this scale. “Borrowing must always be proportionate and this is an extreme example of what happens when that principle is ignored.”

He said: “This is a dark day for everyone in the local government sector and there is no doubt that the framework for accountability and improvement has failed. Further detailed investigation is needed, but based on what has been reported, the areas of weakness are financial management, governance, leadership, and scrutiny and challenge.”

Whiteman claimed it was clear that the controls put in place by the Prudential Code were not followed. “This was only recognised recently by the incoming CIPFA qualified finance director who immediately raised the alarm, as we would expect from our members. While his actions have prevented further loss of public money, this again highlights the need to implement the recommendations of the Redmond Review and ensure we find a swift and effective solution to the current audit crisis, with both preparers and auditors of accounts having specialist public sector knowledge and skills.”

CIPFA’s CEO added: “We need to work harder to prevent this happening again and understand how this small district council was able to operate under the radar for so long.

“Much of local government has a proud heritage in local regeneration, but their involvement is selective and proportionate, and aligned with strong public sector financial management and governance. It seems that this effective decision-making framework was lacking at Woking Borough Council.  

“Difficult decisions need to be made at Woking while the council looks to rebuild both its financial resilience and its reputation. CIPFA, in agreement with the external assurance review, recognises that the council cannot do this alone and will need the support of both central government and its peers over the next few years.”

Adam Carey