SECTION 114 NOTICES What is a section 114 notice?

Chris Brain

Chris spent nearly 25 years working in local government, involved in estate management and strategic asset management.  Having moved on to CIPFA in 2003, Chris has been delivering property consultancy and training across the public sector.  In 2019, he established his own consultancy, Chris Brain Associates, and he continues to support the public sector with property consultancy and training throughout the UK, in strategic asset management, organisational efficiency, and asset valuation.  Chris is a member of ACES and is one of ACES’ Valuation Liaison Officers.

In his usual clear style, Chris explains the whys and wherefores of s114 notices, including debunking the popularist view that it means councils who serve ‘notices’ are bankrupt. 

The financial climate for local authorities is dire. For some local authorities this can of course be put down to poor decision making in the past.  But for many, it is as a result of external forces which they struggle to deal with.  All of this has resulted in an increasing number of stories in the local government media around certain councils issuing section 114 notices. But what is a s114 notice and what does it mean? 

Before I get to that, it’s probably helpful to review how we got to where we are.  It’s worth mentioning at this point, that while the greatest pain is currently being felt by English councils – and that is where this article will mostly focus - those in Northern Ireland, Scotland and Wales are by no means immune. 

Following the provisional Settlement last December, on 3 February the final Local Government Settlement in England provides a 6.8% in cash terms increase in councils’ Core Spending Power compared to 2024-25.  That’s an extra £68bn altogether. 

(In Wales there is an increase of 4.3% and in Scotland an increase of 6.5%, although as with all these figures, these are averages and individual council allocations can be above or below this figure.) 

The austerity period saw English council funding halved on average.  Despite real-terms increases in funding since 2019–20, English local government funding per resident remains on average 19% below 2010 levels, and overall core spending is down 27%. 

This is against a backdrop where over a long period, pressure on local government finances has been seen from increased demand for services, such as homelessness, temporary accommodation, school transport and special educational needs in particular; the latter has risen by 58% in the decade up to 2024-25 according to the National Audit Office. 

It’s perhaps not surprising then that we see mention of s114 notices more and more often, and media headlines about councils going ‘bankrupt’.  

What is s114? 

Section 114 has its origins in the rate capping policy of the Conservative Government of 1985. In that year, Liverpool City Council joined others in what was termed a rate-capping rebellion, which was a campaign which aimed to force the government to withdraw powers to restrict the spending of councils.  In June 1985 the council changed tactics and set an illegal "deficit budget" which committed it to spending £30m more than its income, claiming that the excess represented grant "stolen" by central government. 

When the government was putting together the Local Government Act 1988, it took the opportunity to seek to prevent such deficit budgets being approved in future - in the form of s114. 

What does s114 say? 

One thing to be very clear about, is that when a s114 notice is served, it does not mean that the council is bankrupt.  In fact, its purpose is to prevent it from going bankrupt – not that you would realise this from much of the media reporting around such notices. 

In fact, the word ‘notice’ does not event appear in this section of the Act, although it seems to have become widely accepted as a way of describing the ‘reporting’ action of the chief finance officer under it. 

Another thing that many may not be aware of, is that s114 covers a number of different financial circumstances, not solely about so-called ‘bankruptcy’. 

The so-called ‘bankruptcy’ part of s114 is s114 (3), which says that: 

“The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.” 

This is the section that is intended to prevent a repetition of the 1985 situation in Liverpool. 

As you will see.  The purpose of this report is to prevent bankruptcy, not resulting from bankruptcy. 

What is its effect? 

The s114 ‘notice’ will suspend any relevant expenditure until the decision has been considered by the council (for S114(2) notices) or the cabinet (for S114A(2) notices), at which point the suspension ends. 

That’s why sometimes you can see councils issuing multiple ‘notices’, as in the case of Northamptonshire County Council in February and July of 2018, and LB Croydon in both November and December 2020. 

In this latter case, the second s114 notice was issued on 2 December 2020 after councillors met the day before (as required by the initial notice) but failed to agree a suitably balanced budget. 

The authority must consider the ‘notice’ at a meeting where it has to decide whether it agrees or disagrees with the views contained in the ‘notice’ and what action (if any) it proposes to take in consequence of it.  Such meeting must be held not later than the end of the period of 21 days beginning with the day on which the ‘notice’ is issued. 

This 21-day ‘prohibition period’ means that the authority must not enter into any new agreement which may involve the incurring of expenditure (at any time) by the authority, unless the chief finance officer of the authority authorises it to do so. 

Such ‘notices’ are generally accompanied by freezes on all non-statutory and non-contractually binding expenditure.  This can impact you and your work as a property professional, if you were about to enter into a contract, appoint consultants, or were part way through a procurement exercise. 

There are restrictions on what the chief finance officer may authorise during this period, which are limited to where any such agreement is likely to: 

(a) prevent the situation that led him to make the report from getting worse 

(b) improve the situation, or 

(c) prevent the situation from recurring. 

Authority for these purposes must be in writing, identify the ground on which it is given, and explain the chief finance officer’s reasons for thinking that the ground applies.  If the process is not properly followed, any agreement entered into will be deemed to be null and void, so you cannot just carry on with what you were planning to do, and may have to halt actions at the eleventh hour. 

What other situations are covered by s114? 

There are additional provisions (namely s114(2)) which are where a person holding any office or employment under the authority (other than the executive): 

(a) has made or is about to make a decision which involves or would involve the authority incurring expenditure which is unlawful 

(b) has taken or is about to take a course of action which, if pursued to its conclusion, would be unlawful and likely to cause a loss or deficiency on the part of the authority, or 

(c) is about to enter an item of account the entry of which is unlawful. 

In practice this part of s114 is rarely used. 

How many s114 ‘notices’ have been issued? 

The very first council to issue a s114 ‘notice’ was the London Borough of Barnet in 1988, followed by Lambeth and Camden in 1989 and 1992 respectively.  Then there was quite a long gap until the next one was issued in 2000 by both Hillingdon and Hackney, then Milton Keynes in 2002.  That’s five ‘notices’ over 14 years. 

It then took another 16 years before we saw the next s114 ‘notice’, which was the first of the Northamptonshire ones mentioned earlier, in February 2018.  A relative period of calm, which then started a run of 11 notices over the subsequent five years. 

Those statistics alone tell you everything you need to know about the uptick in s114 ‘notices’ in recent years, a reflection maybe of the generally deteriorating financial health of local government in England.  Many point to this recent pattern in arguing for the need for there to be a complete restructuring of the local government finance system. 

Although we have not seen a s114 ‘notice’ issued since Nottingham in 2023, the threat is constant.  In the past few weeks alone, there are rumours around potential ‘notices’ at Worcestershire, Shropshire, Somerset and Hillingdon. 

We have seen a number of councils being given exceptional financial support from the UK Government.  In the financial year 2025-26, the government has agreed to provide 30 councils with support to manage financial pressures via the Exceptional Financial Support process.  For 8 councils, this included agreement to support for prior years. 

If Council Tax increases are a measure of financial health, we can see that nine out of ten English councils are intending to adopt the maximum increase allowable without a local referendum. 

There is extra pressure on councils that support children with special educational needs and disabilities (SEND).  In a recent Local Government Association survey, over half have warned they will become insolvent when a temporary accounting measure that keeps spending deficits relating to SEND off their main balance sheets comes to an end in March 2026. 

Where next for local government finance? 

The current UK Government has committed to an overhaul of the way English councils are funded, and this is planned to take effect from 2026-27.  What that will look like we do not yet know. And as always, the devil will be in the detail. 

Whatever is proposed will be in the context of policy commitments to boost UK economic growth, as well as pressure to overhaul spending on health and social care and the already announced increases in spending on defence.  It will be interesting to see what impact the overhaul has. 

As the Institute of Fiscal Studies stated in December, “The clearest shortcoming with the English local government finance system is the arbitrary nature with which most funding is allocated between councils. It is therefore welcome that the government proposes to introduce an updated funding system from 2026–27 onwards, although the details of what is proposed will matter, and the government needs to be clear about what it is trying to achieve with its new system.”