Bankruptcy is “very likely” according to a financial report which projects the council could face budget shortfalls of almost £40 million within two years.

Just four months into its time in office, Medway’s governing Labour group has been told if action is not taken, the authority could be in serious trouble.

The medium-term financial outlook report, which is to be discussed at Cabinet next week, estimates the administration will face a £38 million budget gap in 2024/25 on top of £17 million it needs to find for this financial year.

However, the financial woes are only set to grow year on year, with estimated gaps of £49 million in 2025/26 and £65 million in 2026/27, if current trends continue.

The report rates the risk of bankruptcy as “very likely”, as is the possibility of a Section 114 order being issued.

This means central government getting involved at Gun Wharf as the council cuts funding from all services it doesn’t have a legal responsibility to provide.

Council leader Cllr Vince Maple says his administration is doing all that is necessary to avoid bankruptcy and the “very likely” rating was only if no action was taken.

He said: “It’s regrettable we find ourselves in this situation due to the financial circumstances we were left by the previous administration.

“It is not an inevitability and we are committed to doing what it takes to avoid a Section 114.”

When this notice is issued, the council cannot make any more spending commitments and has to meet within 21 days to discuss what to do next.

Central government also intervenes in the operation of council services.

In order to avoid Section 114, spending cuts or revenue increases are needed to plug the financial gap to balance the budget.

Cllr Maple said they would seek to make savings where possible, and that, with other councils, he would be pressuring central government to increase funding.

The report outlined Medway is part of a group of the lowest-funded local authorities per head, despite being required to provide the same services as richer areas.

Referred to as the F20 councils, they have been arguing for greater resources for years, and the medium-term financial outlook says the autumn statement in November will hopefully bring an increase to make up the missing cash.

Cllr Maple added: “We’re looking at all possible options to make those reductions, as well as lobbying central government.

“We’re working in collaboration with other authorities that also have to provide things like adult health and social care, which are very costly to local government, to tell Westminster that we need a fairer deal.”

He said detailed conversations were already under way to find savings and revenue that would help the council to balance the books and avoid the worst. An increase of 5% will be brought in next year.

An outline of paying the overspend for this year, and how it will manage in future, will be put forward in February.

Cllr Maple blamed previous administrations run by the Conservatives for not taking action that could have avoided the current situation.

He said: “There will be difficult decisions to make, we don’t deny that, we’re going to work hard every single day to do what we can.”

Conservative group leader Cllr Adrian Gulvin, who has been involved with previous administrations’ budget management, questioned some of the estimations in the report.

He said: “I would be quite interested where all these enormous increases in costs came from. What’s the justification?

“I do question why these figures are so large, because inflation is now beginning to come down.

“It looks to me like they are painting the worst picture possible to put pressure on the government to give them extra to bail them out.”

Cllr Gulvin stated previous overspends had been due to cuts from the national government to the funding for local councils.

However, he said there was no more money left to cut, leaving these spending gaps unexplained in his eyes.

He did acknowledge local councils need an increase in support from the government, saying evidence for this was the bankruptcy of even well-run councils across the country.

However, he said he would not accept previous administrations were responsible for the current situation.

He said: “We had faced various levels of pressure on our budgets, but we always managed to get it under control.

“When things became difficult we ran a pretty tight budget and did not make any extravagant spending decisions. I won’t take the blame for where we are now.”

He said it was important to avoid a Section 114 notice as it would mean the stopping of all non-essential spending.

He said: “We are looking at the closure of libraries and leisure centres, but I do not think that will be necessary; with really good, tough management, we can avoid that.”

Cllr Gulvin added the council had to be honest about how it was going to balance the books and where cuts were going to be made.

The scale of the budget gap suggests drastic changes will be necessary to avoid bankruptcy.

A key moment will be the autumn statement on November 22, where the Chancellor may announce an increase in funding for local authorities.

If this doesn’t materialise, Medway Council’s troubles will be significantly greater.