A “Bailout” Explained: What is Exceptional Financial Support?

Since July’s Cabinet meeting and as recently as this week’s Cabinet meeting, Hillingdon Council has regularly confirmed it is in discussions with the central government to secure “Exceptional Financial Support” (EFS).

But what does this mean? In simple terms, EFS is a government bailout for a council that can no longer meet its financial commitments.

Councils are legally required to set a balanced budget each year. As Hillingdon Council is forecasting a -£24.9 million deficit by the end of this year , it is on track to be unable to set a legal budget. The EFS process is the only way it can get the permission and cash to remain solvent. If it can’t remain solvent, it has to declare ‘bankruptcy’ in a process known as Section 114.

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The Three Types of “Bailout”

At August’s Audit Committee while standing in as Hillingdon Council’s interim Chief Financial Officer, Andy Goodwin described the three types of EFS the government can offer :

1. A Grant: This is free money from the government to fill the hole. This is now extremely rare.
2. A Loan: A direct loan from the government, which must be paid back with interest.
3. A Capitalisation Directive: This is the most common form and is what Hillingdon Council is applying for .

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What is a “Capitalisation Directive”?

By law, a council cannot normally use borrowed money or money from selling assets (capital resources) to pay for its day-to-day (revenue) running costs, like salaries or social care placements.  This would mean selling assets that belong to the Council.  What can they sell to raise such volumes of money?  We don’t have any information to tell us yet.  If assets have already been sold, how much interest could we be losing by no longer having the funds invested?  These are real cash costs.

This year, Hillingdon Council has a hole in its day-to-day budget forecast to be at least £31.6 million based on figures up to August 2025, although the final amount needed is likely to be higher as the situation develops and is still under discussion with the government.

A “Capitalisation Directive” is special permission from the government to break this rule for a specific amount. If granted, it would allow the council to treat an agreed sum (which would need to be at least £31.6m based on August figures, though the final amount is subject to change and negotiation with government) as if it were capital spending.

It could not be only the first £31.6m though, they would need a minimum of £20m to replenish reserves and more for other failed savings (not to mention additional unforeseen expenditure) so it would not be unreasonable to assume £60m would be necessary.

This permission then allows the council to cover the deficit using capital resources. This could mean taking out new long-term loans or using money received from selling council assets. Hillingdon Council’s own report suggested it anticipates borrowing, as it refers to the “cost of borrowing for the capitalisation” creating a “long-term pressure” in its Cabinet Report ahead of the 23 Oct meeting.

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Is There a “Cost to Residents”?

At the September full Council meeting the Cabinet Member for Finance, Cllr Martin Goddard, claimed there would be “no cash cost” from this bailout.

We are not yet sure that there will be no cost at all.  Is the phrase “no cash cost to residents” a specific disclaiming statement that is technically true not doesn’t really mean the council got some free money? We’re hoping to find out soon.

• The “No Cash Cost” Claim: When asked about this, Cllr Goddard explained this means the council will create an “intangible asset” on its balance sheet and “amortise” (write it down) over 20 years. He claims this accounting act has “no cash outlay” .
• The Reality (The Real Cost): It is our understanding that any borrowing must be paid back, with interest.

• A repayment, which we understand the council calls a “Minimum Revenue Provision,” would be a very real cash cost that must be paid out of the council’s budget every single year for the next 20 years.
• The council’s own October 23, 2025, Cabinet Report seems to contradict Cllr Goddard’s claim, and we are seeking clarification.
• The report states: “…the cost of borrowing for the capitalisation… will create a long-term pressure on the General Fund” .

Summary

We believe that any form of EFS would have a very real, long-term cost. This “long-term pressure” would mean that for the next 20 years, millions of pounds of residents’ council tax would be spent paying off this year’s deficit, leaving less money available for future services like libraries, parks, social care, and road repair.