A local authority has warned that the cancellation of HS2’s northern leg may force it to trigger bankruptcy proceedings.
Leaders of Cheshire East Council said that it had spent more than £11.2m preparing for the rail link, including £8.6m of capital costs funded by borrowing, which the authority now expects to have to pay out of its revenue account.
A report submitted to a meeting last week (13 December) said that this move would likely result in “insufficient funds, and inadequate reserves, to manage in-year expenditure”, forcing it to issue a section 114 notice – an effective declaration of bankruptcy.
The council area covers Crewe, where HS2 phase 2a was supposed to connect with London and phase 2b with Manchester. Both phases were cancelled by prime minister Rishi Sunak in October.
A section 114 notice halts all new council spending, except for what is required to carry out its statutory obligations, such as safeguarding vulnerable citizens. The notice also prevents a council’s expenditure exceeding its income, which is not allowed under the 1988 Government Finance Act.
After a finance officer issues a section 114 notice, council leaders must meet within 21 days to discuss how to balance their budget.
In its latest financial review, published in November, the council forecast a £18.7m budget shortfall by March 2024, an increase £5.9m since the previous financial review a year before. It claimed that demand for social care had gone up, along with the price of carrying out its care services.
The council previously wrote to rail minister Huw Merriman and housing minister Michael Gove, calling for compensation to cover the £11.2m loss.
It said that the local economy had lost an expected £750m boost from HS2 and developers would scrap plans for the area, causing a loss of 4,500 new homes and 5,000 new jobs.
Its latest report said: “The cancellation of HS2 north of Birmingham on 4 October 2023, is a devastating blow to Cheshire East and its ambitious regeneration plans for Crewe and Macclesfield.”
It said it did not believe the government’s Network North proposals for where HS2 funds would be redistributed were enough to set off the impact of its cancellation, and criticised the government for not consulting with local areas.
The council said it wanted to seek a “fair and equitable deal” to compensate for its losses.
A Department for Transport spokesperson said: “Cheshire East is set to receive significant additional support from a new £4.7bn fund to transform local transport across the North and Midlands, as well as a £110m uplift over 11 years for local road maintenance.
“This is on top of a funding boost of more than £2.2m for bus services in the area as well as the extension of the £2 bus fare cap to the end of 2024 – all part of our Network North plans using redirected HS2 funding to benefit more people in more places, more quickly.”
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