What is Exception Financial Support (EFS)?
EFS is temporary financial assistance provided by the government to councils that are facing severe financial difficulties. This support is typically used to help a council meet its financial obligations, continue to deliver essential services and avoid the need to issue a ‘Section 114’ (effectively a bankruptcy notice).
It is not a grant, but permission to borrow - a line of credit that RBWM can draw from as and when required and the council will need to repay this.
This allows the council to treat certain revenue spend as capital spend, as part of a ‘capitalisation direction’ - so instead of funding these costs from the revenue budget, which must be balanced annually, they can be funded by borrowing up to 20 years via the minimum revenue provision, which needs to be paid back.
Why did RBWM request EFS?
Despite significant action taken by the council’s new administration and senior leadership team to get the financial situation under control, by making savings, transforming services and generating income - a lack of reserves caused by historical decisions, including unsustainably low council tax and accounting inaccuracies combined with rising demand for services, particularly social care and homelessness accommodation - meant the council did not have the financial resilience to meet these pressures.
The state of the finances made it clear that the council needed a substantial financial support package from government, alongside a council tax rise above the current cap, to set a balanced budget and start to build back resilience over the medium-term.
Formal discussions with government, on exceptional financial support, started in May 2024.
What is the level of EFS funding for RBWM?
Recognising that the borough’s historically low level of council tax, and that that it is so out of kilter with other areas, is a significant issue for the council’s financial sustainability - the government also granted the council permission to raise borough council tax by 8.99% from April 2025 - an increase of 4% above the current 4.99% cap.
What the request to MHCLG for EFS includes:
| Description | £m |
|---|---|
| 2024-2025 opening general fund deficit | 31.962 |
| Re-establish general reserve to previous level | 10.000 |
| 2024-2025 forecast overspend | 20.500 |
| Further increase to reserve following s151 officer review of adequacy | 5.000 |
| 2025/26 budget gap (of which £15.552m relates to an 8.99% versus 24.99% CTAX increase) |
35.413 |
| Total | 102.875 |
RBWM received confirmation from government in February 2025 that they were ‘minded to’ approve the council’s request for exceptional financial support of £103m, reflecting the level of support needed to balance the budget for 2025-2026.
How will the council pay this back?
The support is provided through a financial flexibility, known as a capitalisation direction, where the government permits the council to treat revenue costs as capital costs and means councils can meet those costs using existing borrowing powers or via capital receipts.
It spreads the cost over several years rather than dealing with it all at once – which the council will pay back through selling assets, there is already a pipeline of sales.
What does this mean for the council and services?
The exceptional financial support allows the council to set a budget for the next financial year and avoid having to issue a ‘Section 114’ (effectively a bankruptcy notice).
By being able to balance the budget the council is able to rectify historic budget issues, rebuild capacity in essential front-line services, and respond to increases in demand-led pressures in children’s and adult social care, and housing services. Replacing services that were historically stripped out - like maintaining borough streets, trees and play areas will also now be possible.
It also supports the council’s Financial Improvement and Sustainability Plan – addressing the recommendations from the independent CIPFA review and outlining the actions and decisions needed over the short and medium-term to get the council and its finances back on track.
The controls the council currently has in place on spending – including the Spending Control Panel that reviews all council spend over £500 - will be retained to prevent all non-essential spend and further strengthen financial governance.
Will this mean someone else runs the council?
No, EFS does not necessitate the need for commissioners to run the council. The council will continue to function as it currently does, having set a balanced budget for the year ahead, and continuing to provide services to borough residents and businesses.
The government has said that councils that receive EFS are required to undergo an external assurance review which will include an assessment of the council’s financial position and governance arrangements. It is likely that the previous financial resilience review commissioned from CIPFA in 2024 will already fulfil this requirement.
How many other councils have received EFS?
RBWM is not the only council to receive EFS – 30 councils in total have had similar arrangements agreed by the government for 2025-2026.
This follows the government providing 19 councils with support to manage financial pressures via the Exceptional Financial Support in 2024-2025.
What about future years?
The exceptional financial support doesn’t eradicate the council’s ongoing structural budget gap, which totals over £30m and can’t be closed through savings, efficiencies, transformation or increased income alone.
This means that RBWM will need to reopen discussions with government now that the budget for 2025-2026 is approved – about the level of support needed to set a balanced budget in 2026-2027 and over the medium-term.
The government is also doing a fundamental review of local government finances for 2026-2027 onwards – as part of the Spending Review. Further information is expected during 2025 on what this will mean for the Royal Borough.
What is a ‘Section 114’?
If a council’s the Chief Finance Officer (Section 151 officer) reports that the council’s expenditure exceeds the amount of resource available, then they will issue a ‘Section 114’ – a notice the council is effectively bankrupt.
This then means that no new expenditure is permitted - except for funding statutory services at a minimum possible level, including safeguarding vulnerable residents, however existing commitments and contracts will continue to be honoured.
Issuing a ‘Section 114’ could also mean that government appointed commissioners would be sent into the council, likely leading to councillors losing some or all control of the council. Commissioners would also need to be paid – increasing costs to the council.
In most cases, commissioners are council chief officers from other authorities. Those councils that have had commissioners appointed in recent years have relied on council tax increases and EFS deals to set their budgets. RBWM has already been granted both.
The council has also limited all spend to essential and proactively already established a Financial Improvement and Sustainability Board, to provide independent critical challenge on the council’s transformation and financial recovery plans.