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Leader of city council forced to deny it is close to bankruptcy after report leaked

The Leader of financially-troubled Nottingham City Council has denied reports that the local authority is on the verge of bankruptcy.

The statement by Cllr David Mellen followed media reports of the findings of a rapid, non-statutory review led by Max Caller.

Mr Caller had been asked by the Government to undertake a review examining “the serious governance and risk management issues” associated with the council’s private energy company Robin Hood Energy (RHE).

A public interest report, issued by Grant Thornton in August 2020, had accused the city council of "institutional blindness", claiming Nottingham made several failings in the creation and management of RHE including inadequate governance arrangements and a failure to understand the risks associated with entering the energy business.

The report also exposed RHE's year on year losses since its creation in 2015, which came to £34m. In September Nottingham announced that RHE, which was the UK's first energy company to be set up and run by a council, was to be shut down and its customer base sold to a rival energy supplier.

According to a report on the BBC, key findings from the Caller review – which is yet to be published but has been seen by the Local Democracy Reporting Service – included:

  • The council is not in a position to approve a legally-required budget for 2021-22 as things stand. If it cannot do this, it would have to issue a Section 114 notice - effectively declaring itself bankrupt
  • Council reserves are deteriorating year-on-year, and are now the second lowest of all core cities
  • The council has been instructed to conduct an "in-depth review" of all its companies to determine the future status of them, and told to bring some in-house 
  • Criticism of the use of councillors on the boards of council-owned companies without sector-specific knowledge
  • A three-year recovery plan must be submitted to government by next month to plug a hole of between £53m and £64m by 2023-24

Mr Caller’s report is currently with the Local Government Secretary Robert Jenrick for consideration.

Cllr Mellen said: “The report does not use the word ‘bankruptcy’. It does highlight that the council needs to make savings in order resolve our very difficult budget situation and we are currently developing budget proposals in order to meet that challenge.

“We have been working closely with Max Caller and his team over the last few weeks as they have carried out the review. We fully accept the findings and remain committed to making the improvements needed to ensure we are the best we possibly can be as a council.”

Cllr Mellen acknowledged that the review raised serious issues around financial management and governance that needed to be addressed urgently.

“It highlights that we have been slow to act on warnings about the risk of relying on one-off savings and income through commercialisation and that we should have been managing budgets on a longer term basis to reduce core expenditure and transform service,” he said.

“The council’s capital expenditure and high levels of debt compared to other cities is also flagged up as a major concern with the cost of borrowing restricting our flexibility on day-to-day spending.”

Mel Barrett, the council’s chief executive who joined the authority in September, said: “The review team said it was impressed with the determination of the council’s leadership to stabilise the current situation and take the necessary decisions to bring about improvement.

“We hope and believe this demonstrates confidence that we can deliver the changes needed, building on the work we have already begun following the publication of the Public Interest Report in the summer.”