Emergency financial help is now needed to avoid effective bankruptcy, leaders at Middlesbrough Council have been told.

In a stark warning to the Executive, a report said a request for exceptional financial support must be made to the Government this month. If they choose not to approve the move at a meeting next week, or a financial life raft is insufficient, a section 114 notice will be issued.

All councils are legally required to ensure the budget is balanced by March, and expenditure is not more than income. Despite proposed cost-cutting measures, Middlesbrough Council still faces a £6.3m funding deficit.

A raft of asset sales and a transformation programme of services have already been signed off while further savings proposals totalling £14m are out for public consultation. They include job cuts, reduced waste collection and a council tax increase of 4.99 per cent.

A statement in the council’s draft accounts report said, along with consideration of the Local Government Finance Settlement, the measures will not deliver “sufficiently robust and implementable savings plans” in time. Therefore, an application to the Department for Levelling Up Housing and Communities (DLUHC) “will be necessary during January 2024” to balance the books.

If approved by Government, the move would then be voted upon by the full council. A report to the Executive said: “Middlesbrough Council’s financial position is critical.

“At the time of writing, the council are consulting on a budget gap of £6.3m for 2024/25, with the risk of the council issuing a section 114 notice remaining a possible outcome.”

A spokesperson for the council said the provisional Local Government Finance Settlement in December was as predicted and brought “no new resources above those already planned for”. He added: “The council is taking this decision in order to seek to avoid the more severe consequences of issuing a Section 114 notice, which have been issued recently by other local authorities, but that risk remains if a balanced budget cannot be achieved by the statutory deadline of March 11.”

Middlesbrough Council was run by an Independent-Conservative administration until May when Labour took power. Politicians from all sides have repeatedly blamed each other for the council’s ongoing financial woes.

The report to the Executive blamed the council’s “critical” financial position, in part, on “past failures” to establish and deliver sufficient savings plans and “over reliance” on revenue reserves to meet overspending. The council’s draft accounts for 2022/23 show reserves have been used to support overspends across services but particularly in children’s social care which had a final overspend of £9.4m.

As part of a plan to address overspends, the council said it is introducing enhanced early help and prevention, development of new placement models and more in-house foster care. Full delivery of the plan is “essential” to avoid further weakening of the council’s financial position, said the draft accounts statement.

A DLUHC spokesperson said they are “ready to talk” to any councils concerned about their financial position. At a DLUHC Select Committee meeting on December 6, Secretary of State Michael Gove said each of the local authorities that have had to issue section 114 notices have had “failures of leadership, management and governance and some have taken risks that were unmerited.”

He added: “It may be the case in the future that some local authorities that have been relatively well managed will face particularly acute pressures, but I would not want at this stage to predict that a section 114 notice will be issued by a local authority that has been well managed. So far and I stress it is so far, there has been a direct linkage between poor leadership and the subsequent issuance of a section 114 notice.”

In December, Tees Valley Mayor, Ben Houchen, MP for Middlesbrough and East Cleveland, Simon Clarke, and four Conservative councillors wrote to Simon Hoare, Parliamentary Under-Secretary of State for Local Government, requesting commissioners step in and take over control at the council.

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Mayor of Middlesbrough, Chris Cooke, said the letter to Mr Hoare was “littered with inaccuracies” and insisted it was “a call to abandon Middlesbrough”. 

At a meeting in December, he told the Executive: “I’m of the opinion that what we are doing is difficult but the option of section 114 or any equivalent level of intervention would actually put us in a much worse place.

"What we are seeing around the country with a 10 to 15 pc rise in council tax, what we are seeing with libraries closing, residential care homes closing, that is not a situation that I think we should be in.”