Finance directors would need to warn the government before they issued a Section 114 notice during the coronavirus pandemic, if new rules get the go-ahead.
Plans for new temporary guidance, which have been put forward by finance chiefs, would see statutory finance officers give the government the chance to respond before they called a halt to spending under the s114 rules.
Under existing rules, which would remain in place, section 151 officers must give a warning to the council cabinet and the external auditor if they are going to freeze spending while they try to balance the budget.
The Chartered Institute of Public Finance and Accountancy (CIPFA) are now in talks with the Ministry of Housing, Communities and Local Government (MHCLG) to include the warning to ministers – which would give the government the opportunity to intervene if they wished.
Speaking at an online event, CIPFA associate director Andrew Burns said Government was yet to approve the proposals, but there was little to object to. In the event that MHCLG did not sign up to the guidance, Mr Burns said it was likely that the accountancy body would recommend it as an option to its members regardless.
Mr Burns told online delegates the real solution to the current problems was to increase funding. The funding controls imposed by a s114 notice would not be enough to balance the budget, he said, and it would potentially damage the response to COVID-19 as it would freeze all but statutory spending.
Under the proposals, there would be a delay to issuing the s114 while the MHCLG responded with advice, financial support or assistance, Mr Burns suggested. He also warned that MHCLG would need to respond ‘with an appropriate sense of urgency’ but said no time limit had been specified as yet.
‘They [MHCLG] have capacity limitations,’ Mr Burns told The MJ. ‘They could cope with one or two s114 notices, but they wouldn’t be able to deal with 20 or 30.’ It would therefore depend on how many councils faced financial collapse.
Local government finance experts have estimated that up to 40% of councils are theoretically in a position where they would be considering issuing a s114
Mr Burns said: ‘The answer is not to change the rules, the answer is further and sustained financial support.’
Communities secretary Robert Jenrick told a recent Housing and Communities Select Committee that he had urged councils facing a s114 notice to approach the department before issuing it.