Section 114 Notices & Exceptional Financial Support: What Councils Need to Know in 2026

A Section 114 notice is a formal declaration that a council cannot balance its budget, triggering strict spending controls under the Local Government Finance Act 1988. Exceptional Financial Support (EFS) is the government's main alternative — typically a capitalisation direction or extra borrowing flexibility — designed to help a council avoid reaching that point, though it comes with its own conditions and long-term costs.

Key Takeaways

•  A Section 114 notice puts a council under strict spending controls once its Section 151 officer determines a balanced budget isn't deliverable.

•  Exceptional Financial Support (EFS) — usually a capitalisation direction — is the government's main alternative to a s114 notice, but it isn't free money and comes with real conditions.

•  Research from Sigoma suggests up to 26 local authorities could issue a s114 notice within the next two financial years.

•  Early warning signs — falling reserves, a widening MTFS gap, repeated reliance on one-off savings — are visible well before a notice becomes necessary.

•  Building resilience early is markedly cheaper, in cash terms and in reputational terms, than managing a crisis after the fact.

What Is a Section 114 Notice?

Under section 114 of the Local Government Finance Act 1988, a council's chief finance officer (typically the Section 151 officer) has a personal legal duty to issue a report if they believe the authority's expenditure will exceed the resources available to meet it. Once issued, the notice puts the council under strict spending controls: aside from statutory services, safeguarding duties, existing contractual commitments, and ring-fenced grant spending, most new spending is frozen pending a formal review.

Section 114 notices remain rare but are no longer the outlier they once were. Since 2018, authorities including Northamptonshire County Council, Slough Borough Council, Thurrock Council, Woking Borough Council, Birmingham City Council, and Nottingham City Council have all issued one. The direction of travel is not reassuring: a survey by the Local Government Information Unit (LGIU) found that 51% of councils now consider it likely they will issue a s114 notice within the next five years, with 9% — around 14 authorities — saying it's likely within the current financial year alone. Only 4% of respondents said they were confident in the sustainability of their finances as things stand.

What Is Exceptional Financial Support (EFS)?

Exceptional Financial Support is the mechanism the Ministry of Housing, Communities and Local Government (MHCLG) uses to help a council avoid issuing a s114 notice. In practice, EFS most often takes the form of a capitalisation direction — permission to treat certain revenue costs as capital expenditure, funded through additional borrowing rather than the current year's budget — plus, in some cases, one-off flexibilities around reserves or council tax.

It's important to be precise about what this isn't. EFS is not a grant, and it is not debt forgiveness. It defers pressure rather than removing it: the borrowing has to be serviced and eventually repaid from future budgets, which is exactly why finance directors describe it as buying time rather than solving the underlying problem. Government approval typically comes with conditions attached — a published improvement or recovery plan, closer MHCLG scrutiny of in-year spending, and restrictions on discretionary spend until the position stabilises.

2025/26 has already produced clear examples. Shropshire Council requested EFS after warning of a potential £50m overspend by March 2026 against reserves of around £34m, following a declared financial emergency. Bradford Council, facing a reported £120m structural funding gap driven substantially by rising children's social care costs — with a forecast £73m overspend this year and a further £104m gap next year — has also looked to EFS and a capitalisation direction rather than issuing a notice outright.

Early Warning Signs

A s114 notice rarely arrives without warning. The pattern that tends to precede one is fairly consistent across the councils that have reached that point:

•  Reserves falling as a proportion of net budget, particularly unearmarked general reserves

•  A Medium Term Financial Strategy (MTFS) showing an unfunded gap beyond year one, rather than a credible savings plan to close it

•  Repeated reliance on one-off or non-recurring savings to balance the in-year budget

•  Demand-led cost growth — children's social care, SEND, adult social care, temporary accommodation — consistently outpacing funded budget growth

•  External auditor concerns, qualified opinions, or delayed publication of accounts

How Councils Can Build Financial Resilience Before It Gets There

None of the warning signs above are sudden. They build over several budget cycles, which means there's usually a genuine window to act before options narrow to EFS or a s114 notice. In practice, that work tends to fall into three connected areas: a Medium Term Financial Strategy that's actually stress-tested against realistic demand growth rather than optimistic savings targets; an independent Efficiency Review that identifies genuine, deliverable savings rather than restating existing budget pressures; and enough day-to-day Financial Management capacity and discipline to catch a widening gap in month four rather than month eleven.

How Nonsuch Finance Supports Financial Resilience

Nonsuch Finance was founded by Enver Enver, former Chief Finance Officer of the Greater London Authority, with more than 30 years of public sector finance experience spanning the GLA, the Cabinet Office, the Home Office, local government, and NHS trusts. That background sits behind every engagement — the aim is always to help a council reach financial stability before EFS or a s114 notice becomes the only remaining option, not to manage the process once it already has.

"The councils that avoid a section 114 notice altogether are rarely the ones with the biggest budgets — they're the ones that treated an early warning sign as a genuine trigger for action, not just another line in the MTFS risk register. By the time EFS is the only option left on the table, most of the cheaper choices have already gone."

— Enver Enver, Founder & Managing Director, Nonsuch Finance

Frequently Asked Questions

What is a section 114 notice?

A section 114 notice is a formal report a council's chief finance officer must issue under the Local Government Finance Act 1988 if they believe the authority cannot balance its budget. It triggers strict controls on new spending until the council's financial position is reviewed and stabilised.

What is Exceptional Financial Support?

Exceptional Financial Support (EFS) is government assistance — usually a capitalisation direction allowing certain revenue costs to be funded through additional borrowing — offered to help a council avoid issuing a section 114 notice. It comes with conditions and has to be repaid from future budgets.

Can a council recover after issuing a s114 notice?

Yes. Several councils that have issued a s114 notice, including Slough and Thurrock, have gone on to rebuild their financial position through structured recovery plans, though the process typically takes several years and involves sustained government oversight.

How can a council avoid needing EFS?

The most reliable route is early action on the warning signs — a realistic, stress-tested MTFS, a genuine efficiency review, and disciplined in-year financial management — well before reserves are depleted or the funding gap becomes unmanageable within existing budgets.

Is EFS the same as a government bailout?

No. EFS is typically additional borrowing permission, not a grant. The costs are deferred rather than written off, and councils are expected to repay the underlying debt from future revenue budgets.

What triggers a council to consider issuing a s114 notice?

A s114 notice becomes necessary when a council's chief finance officer concludes that expenditure will exceed the resources available to meet it and no further in-year mitigation, EFS, or reserves drawdown can close the gap.