You are looking at a flat in a city whose council has been in the news, and not in the way councils would like. A friend says the place is bankrupt. That is nearly right and not quite, and the difference matters to your monthly outgoings whether you are buying or renting, because council tax is paid by whoever lives in the property.
What is a Section 114 notice?
Section 114 of the Local Government Finance Act 1988 requires a council's chief finance officer to issue a report if the council is about to spend more than it has. The moment it lands, new spending stops except for statutory services (social care, bins, the legal minimum), and the full council must meet within 21 days to agree a plan. Councils cannot go bankrupt the way a company can; they cannot be wound up and the bins keep being collected. What follows is cuts, asset sales and often government commissioners running the place.
Since 2018 the list has grown from a novelty to a category: Northamptonshire, then Croydon (three times), Slough, Nottingham, Thurrock, Woking and Birmingham, the largest council in Europe, in September 2023. Several others have taken exceptional financial support to avoid issuing one, a quieter version of the same problem.
How much can council tax go up?
In England, councils that run social care can normally raise council tax by up to 4.99% a year (2.99% core plus a 2% adult social care precept) without a referendum. District councils are limited to under 3%, or £5 a year. Councils in serious trouble have been allowed to go further. Croydon was permitted 14.99% in 2023. Birmingham, Thurrock, Slough and Woking were permitted 9.99%, and in 2025 a further group including Bradford, Newham, Windsor and Maidenhead, Somerset and Trafford were granted rises above the cap without a Section 114 notice at all.
Here is what that does to a bill, with numbers that are illustrative only and not any council's actual rates. Take a band D bill of £2,000. Five years of 4.99% rises takes it to about £2,551. Five years of 9.99% rises takes it to about £3,220. Band E is charged at eleven ninths of band D, so the same area bills band E at about £2,444, rising to £3,118 at the normal cap or £3,935 at the higher rate. Over a five year fix, the gap between the two paths on a band E flat adds up to roughly £2,700, which was going to be the kitchen.
What else changes when the money runs out?
Services thin out, and some you notice while buying. Planning departments lose staff, so applications take longer and enforcement against the neighbour's unauthorised extension slows or stops. Local land charges teams shrink, so the local search your solicitor orders can take weeks rather than days. Libraries, leisure centres and street cleaning get cut, and car parks and green space may be sold. Birmingham's bin strike ran for months in 2025, which no local search will mention.
If you rent, you are still the one liable for council tax in most tenancies (the landlord pays only in HMOs where rooms are let separately), so the increase lands on you, whatever the tenancy agreement says about rent rises.
What should I ask?
Ask the agent what band the property is in and what this year's bill is, not last year's. Ask your solicitor how long the local search is currently taking with this council and whether the council has exceptional financial support or a council tax exception for next year. If you are renting, ask the landlord whether council tax is included (it usually is not) and check the band yourself on the Valuation Office Agency list. Ask whether commissioners are in place, because their reports set out the cuts in plain terms.
How Eavesdrop checks this
Eavesdrop reads the council's published budget and Section 114 status, the government's list of council tax referendum exceptions and exceptional financial support, and the Valuation Office Agency band for the address, and puts them together in the Town hall tell with a note on which year's rates it is quoting. Before you offer. Before you sign. Eavesdrop.
Quick answers
What does a Section 114 notice mean? It is a formal report under the Local Government Finance Act 1988 saying the council cannot balance its budget. New spending stops except for statutory services, and cuts and asset sales usually follow.
Is my council bankrupt? Councils cannot go bankrupt in the legal sense, but a Section 114 notice is the nearest thing. Check the council's website for a Section 114 report or for commissioners appointed by government.
How much can a Section 114 council raise council tax? The normal limit for councils that run social care is 4.99% a year without a referendum. District councils are limited to under 3%, or £5. Councils in financial difficulty have been permitted 9.99% and, in Croydon's case, 14.99%.
Sources: Local Government Finance Act 1988, section 114; Ministry of Housing, Communities and Local Government council tax referendum principles and exceptional financial support announcements; Valuation Office Agency council tax bands.
