An audit prompted councillors to ask about the risk of Brighton and Hove City Council being unable to set a balanced budget next year.
Independent councillor Pete Atkinson said that the annual auditors’ report to the end of March last year indicated that the council faced a risk of a “section 114 notice” being issued.
A section 114 notice is issued when a council can’t pay its bills or set a balanced budget and would halt council spending, unless permitted by the council’s finance chief.
Councils can’t go “bankrupt” in the same way as a business but they are required by law to set a balanced budget.
Councillor Atkinson raised the concern when the council’s Audit, Standards and General Purposes Committee met on Tuesday (27 January) when the annual audit report for 2024-25 went before members.
The auditors, from Grant Thornton, said that without “urgent clarity and decisive action” the council’s 2026-27 budget faced a serious threat of prompting the issue of a section 114 notice and government intervention.
Councillor Atkinson said: “What we’re looking at is probably being duplicated right across the country in terms of the financial problems that councils are under.”
He asked what a section 114 notice would mean – and he was concerned about the need for “significant improvement” in managing the council’s Housing Revenue Account (HRA).
Conservative councillor Anne Meadows also raised concerns about the HRA, which is funded from council tenants’ rents, because the council is building more homes while tackling a repairs backlog flagged up by the social housing regulator.
When the draft budget for 2026-27 went before the council’s People and Place Overview and Scrutiny Committees on Monday 19 January, the general fund, which covers the council’s daily spending, had a £12.4 million gap.
At this stage, the council had already put forward more than £12 million in savings.
Pressures on the general fund included the increasing demand and cost of temporary and emergency housing for the homeless.
The council’s interim director of finance and property John Hooton said that he would only issue a section 114 notice if the council could not set a balanced budget and could not manage its in-year finances.
Mr Hooton said: “The thrust of their (the auditors’) recommendations are as a council we need a really good financial plan to get us into a good sustainable position.
“They refer to needing a transformation plan and we’ve spent the last year building that plan and we’re taking that set of plans to cabinet next month (February).”
The future financial plan is looking at high-cost areas such as spot-purchased emergency housing and adult social care placements, Mr Hooton said.
Cost-cutting measures included moving council staff out of Barts House, in Brighton, to Hove Town Hall.
On the HRA, Mr Hooton said that the reserves were “ok”, standing at just over £12 million. But the council is aware that it should not “eat into that”.
The final budget proposals are due to be published on the council’s website next Wednesday (4 February), with the general fund, Housing Revenue Account and capital spending up for debate at a cabinet meeting on Thursday 12 February.
The annual “budget council” meeting – where all 54 councillors are charged with setting the budget – is due to take place on Thursday 26 February.
Lucky that BHCC have spent £7m over and above the central government fund in the disaster that is VG3.
Yet Labour councillors continue to bury their head in the sand and refuse to challenge their Labour government colleagues about the impact Labour austerity is causing.
Instead they are willing to close libraries, make cuts to community care services, close nurseries, charge for toilets, fail to fix potholes, and make other terrible and devastating decisions which have the potential to cause real harm to residents. All rather than speaking out and being prepared to call on ministers to right the wrongs of austerity and local government funding cuts.
They are simply putting party loyalty over people and it’s shocking that so many of the administration are complicit in this harm and damage being done to our city and the people in it.
Yet the borrowing binge for vanity projects that no one wants continues as if there is no tomorrow. Every time a financial question was asked, it was glossed over or fudged. One of the most horrifying moments on the webcast was Charles Harrison’s question about why an emergency procurement for £18m to provide bedspaces for the homeless had been made to a company only three years old and worth £9k? Where was the financial due diligence and tendering process for this contract. Heads should role if this is how wreckless they are with public money. There are also rules about trading whilst insolvent if the 114 bankruptcy axe should fall.