Birmingham city council declares itself in financial distress

Birmingham city council, the largest local authority in the country, has in effect declared itself bankrupt after issuing a section 114 notice, signalling that it does not have the resources to balance its budget.

In a statement published on Tuesday, the leader and deputy leader of the Labour-run council, John Cotton and Sharon Thompson, said the notice was “a necessary step as we seek to get our city back on a sound financial footing”.

They attributed the council’s financial crisis to “longstanding issues” including equal pay liability claims and complications from implementing a new IT system.

The council said “it does not have the resources” to fund its equal pay liability, and has a gap in its current budget of £87m.

In June, the council revealed it had already paid out £1.1bn in equal pay claims over the past decade, and had a current liability of £650-750m, accruing at a rate of £5-14m a month.

A section 114 notice, issued in the past by councils including Croydon and Thurrock, means no new expenditure is permitted, with the exception of protecting vulnerable people and maintaining statutory services.

Just last year the council published a financial plan described as a “bold budget” designed to “maximise the potential of a golden decade for the city”.

Robert Alden, the leader of the Conservative opposition, said: “What Labour pledged was a golden decade ahead to voters in 2022 turns out to be based on budgets in 20-21 and 21-22 that did not balance and were unfunded.

“Combined with Birmingham Labour’s refusal to deal with equal pay over the last decade this has created this mess where residents will now lose valuable services and investment.”

Thousands of women employed by the council were granted compensation in 2014 following a successful equal pay claim in which they argued they had missed out on bonuses awarded to men on the same paygrade, with claims stretching back several years.

On top of this, the council leader confirmed earlier this year that problems with a new IT system affecting payments, data management and background checks would cost up to £100m to fix.

The council also criticised the fact it has “had £1bn of funding taken away by successive Conservative governments”.

“Like local authorities across the country, it is clear that Birmingham city council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates income, to the impact of rampant inflation, it is clear that local government is facing a perfect storm,” the statement said.

skip past newsletter promotion

Our morning email breaks down the key stories of the day, telling you what’s happening and why it matters

Privacy Notice: Newsletters may contain info about charities, online ads, and content funded by outside parties. For more information see our Privacy Policy. We use Google reCaptcha to protect our website and the Google Privacy Policy and Terms of Service apply.

after newsletter promotion

Last week it was revealed at least 26 councils in some of Britain’s most deprived areas were at risk of effective bankruptcy within the next two years, according to the Special Interest Group of Municipal Authorities (Sigoma), a collective of 47 urban councils.

In the past two years there have been a number of financial collapses in local government, including Slough in 2021, followed by Croydon and Thurrock in 2022, and Woking, which announced a budget deficit of £1.2bn earlier this year.

In July, Birmingham city council commissioned an independent governance review, in collaboration with the Department for Levelling Up, Housing and Communities, to look at its financial issues.

Ian Ward led the council for six years until he was ousted earlier this year when the national Labour party intervened after a damning internal report said the local party was “dysfunctional” and dominated by “personality-driven factionalism”.

The Labour party has been contacted for comment.