A council admits it may have to effectively declare itself bankrupt as it faces a £3 million black hole due to the Covid-19 pandemic.

Finance chiefs at Thanet District Council say the authority may be forced to issue a Section 114 notice - freezing spending.

Councillors from the council's Cabinet are set to hold crunch talks on Thursday, July 30, over whether to use its reserves to meet the shortfall.

Council leader Rick Everitt says the authority's priority is to avoid axing vital services.

But a report by deputy chief executive Tim Willis warns removing £3.05m from the reserves "will cancel projects and expose the council to financial risk".

He adds: "Before Covid-19, Thanet had the lowest level of reserves in Kent, so we were not starting from a position of strength."

Mr Willis sets out a number of areas where the council is set to overspend this financial year as a result of the pandemic.

"Our priority is to protect services and to continue to provide support for local residents and local businesses"

This includes a £173,000 overspend on tackling homelessness - and an additional £284,000 on waste collection after agency staff were hired to ensure rounds were not missed.

Meanwhile, total income from parking is set to be £805,000 down compared to budget.

Overall, the council is set to overspend by £5.7m. But this has been offset by £1.5m of government funding so far - with further financial support expected soon. This leaves a £3.05m gap.

Mr Willis writes: "The size of the potential gap is so large that there is the possibility of a S114 notice - this is when the Section 151 Officer (Mr Willis) informs the council that it is going to run out of reserves, or that its expenditure plans exceed its income, and results in freezing expenditure.

"To manage this situation, it is proposed to immediately fund all expenditure incurred or committed by transferring reserves to appropriate budgets, but to hold in a ‘Covid-19 Shortfall’ reserve sufficient to cover expenditure and income losses from sales, fees and charges."

Cllr Everitt said: “Our priority is to protect services and to continue to provide support for local residents and local businesses.

"We will have to make difficult decisions but every effort has been made to identify reserves that avoid a reduction in services or cuts to projects.

"As the report addresses one-off issues occurring this year, reserves would be used to fill the budget gap, rather than needing to use day to day services’ budgets.

"It would then be necessary to replenish these reserves in the medium to longer term.”

A council spokesman added: "The Cabinet report clearly sets out a proposed solution to the budget issues arising as a result of the pandemic and does not recommend issuing a S114 Notice."

According to the BBC, almost nine out of 10 local authorities face budget deficits as a result of the coronavirus, with the estimated shortfall forecasted to be as high as £3.7bn.

At least six other councils across the country said they could be forced to effectively declare themselves bankrupt.

Head to our business page for all of the latest news about businesses in Kent.

Read more: All the latest news from Thanet