Agent151: Anyone for a section 114?
0The current tough times for local government will, no doubt, be remembered as the bad old days at some time in the future; but some of us are old enough to remember the last time we were in a mess like this: the old bad old days.
Any local government finance professional who has experienced it will tell you that the issuing of a section 114 notice is something that really sticks in the mind, and there was quite a rash of them back in the 1990s.
We may be entering a new era in which the section 114 will re-emerge as a more frequent, but nonetheless alarming and controversial, local government news item. The announcement of the draft settlement has sparked a round of shroud-waving that has fanned speculation about which council will be first to issue one.
For the uninitiated, the section 114 powers of the chief finance officer (CFO) under the Local Government Finance Act 1988 require the CFO, in consultation with the council’s monitoring officer, to report to all the authority’s members if there is, or is likely to be, an unbalanced budget.
In practice, this is most likely to be required in a situation in which reserves have become depleted and it is forecast that the council will not have the resources to meet its expenditure in a particular financial year.
A full council meeting must then take place within 21 days to consider the notice. In the meantime, no new agreements involving spending can be entered into.
Ugly truth
Let’s agree right now that things have to be pretty bad before you’re going to issue that notice. To begin with, your reserves must be pretty much exhausted, to the point at which you have sacrificed all of your medium and long-term financial commitments in order to finance current expenditure.
You must also have no confidence that future expenditure is going to be reined in to affordable levels; which either means that you believe the forecasts in your budget paper are a work of fiction, or that your budget paper presents the ugly truth that there are no plans.
Next, you will almost certainly be currently spending more than you have budgeted for anyway, and have no confidence that you will be able to bring spending under control; and finally, you must be convinced that there is absolutely no way of brokering a solution without issuing the notice.
In those circumstances it is almost certain that some, and perhaps all, of your key relationships will have broken down. It’s a lonely place indeed, and one that you should take every step possible to avoid. Making the organisation confront the issue long before you reach the point at which an section 114 is required is always better.
Courage, tea and escape
Should you find yourself in that bleak landscape, you must hope that you still have some allies left. You should be able to rely upon the monitoring officer and the external auditor for support, but the extent of their support will depend upon how much courage and integrity they have.
The external auditor has a duty to “make a report in the public interest” if necessary (Schedule 7 of the Local Audit and Accountability Act 2014), and the report must be considered by the full council.
In the bad old days, if your external auditor thought you should issue a s114 notice and you didn’t, they might have threatened you with a public interest notice. I am not sure that the current crop of external auditors would have the appetite for such an aggressive stance.
Other potential allies include the LGA, which will show an interest, and HM Government, which seems to have a penchant for intervening in local issues and will certainly be circling in a vulturine manner.
Your most helpful allies are, however, likely to be your fellow treasurers and your professional institute; both of whom will give you invaluable advice and a strong cup of tea: you will need both in large quantities. Ignore these last two friends at your peril!
The most likely outcome of a section 114 situation is that some agreement will be reached about the immediate imposition of spending controls until such time as a credible balanced budget can be brokered.
All but the most routine, low-level transactions will be suspended until approved by a high level panel, probably chaired by you; a process that slows down spending nicely and puts you in control.
That sounds like a happy ending, but history tells us that an section 114-wielding CFO rarely escapes unscathed. Some are plucked from their office before they can even sign the notice, and some depart shortly afterwards; the fate of each obscured from public view by a compromise agreement (soon to be capped, by the way). I can think of only one CFO that came out of it with a promotion to chief executive. Who would be a local authority finance director, eh? Welcome to the new bad old days.
Agent 151 is a senior local authority finance director and section 151 officer.
