Havering Council is edging closer to bankruptcy as uncertainty continues around a multi-million-pound loan requested from the government.
The council says that it will be forced to declare itself effectively bankrupt by the end of February if the government does not approve a £54million loan to keep it afloat.
Budget papers published on Monday show the extent of the financial crisis that Havering faces next financial year (2024/25).
The council has an estimated budget gap of £14m. Its reserves, which amount to £8m, are the third lowest in London.
Havering’s chief financial officer Kathy Freeman has signed the budget off as being “as robust as it can be” but warned that it is not sustainable in the long term due to “years of systemic underfunding”.
However, she said there are still “significant financial risks” that could become worse as the year progresses, such as inflation, unpredicable demands on council services or “new burdens”.
The council has asked the Department for Levelling Up, Housing and Communities (DLUCH) for a loan, known as a capitalisation direction, of up to £54m.
The government has not confirmed whether there is any likelihood of the loan being approved.
The council argues that requests to borrow money will continue “year-on-year” if the government does not fix the “inadequacies of the outdated funding system”.
Giving an example, the council’s budget says it receives £22m per year in grants to provide adult social care for its 46,000 residents aged 65 or older – the lowest in East London.
The Local Democracy Reporting Service has approached DLUCH for comment, but had not received a response at the time of publication.
DLUCH has repeatedly refused to comment on complaints that it has failed to update how it shares funding out to councils since 2013.
If the council declares effective bankruptcy – known as a Section 114 notice – government commissioners may be appointed to take control from democratically-elected councillors.
Commissioners could impose even stricter spending controls on the council than it has already imposed.
The council has already set out about £10m in cuts and savings it is considering, including closing libraries, spending less on roads and putting up car parking charges.
Last week, the government said it will give councils an extra £600m, but it remains unclear how much of this will benefit Havering.
Councillors are expected to scrutinise the budget papers at the overview and scrutiny board on Wednesday before approval at a cabinet meeting on February 7.
Final approval will go before all councillors on February 28.