Birmingham City Council ‘effectively bankrupt’

5 September 2023, 09:52 BST

Updated 13 minutes ago

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Birmingham City Council is to stop all new spending, with the exception of money for statutory services including the protection of vulnerable people

Birmingham City Council has declared itself effectively bankrupt.

The local authority – the largest in Europe – has issued a Section 114 notice preventing all but essential spending to protect core services.

In a joint statement, the leader and deputy leader of the Labour authority said the notice was a “necessary step as we seek to get our city back on a sound financial footing”.

Such a notice, issued in the past by councils including Croydon and Thurrock, means a local authority has judged itself to be in financial distress and can no longer balance its budget.

Opposition leader, Robert Alden, Conservative, said the council had “failed to show the proper speed and urgency needed to tackle equal pay”.

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Councillor John Cotton was appointed leader in May

In their statement, councillors John Cotton and Sharon Thompson, leader and deputy leader respectively, said the authority was also facing financial pressures due to issues with the implementation of its Oracle IT system.

“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,” Mr Cotton and Ms Thompson said, adding local government faced “a perfect storm”.

The statement continued: “We implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support.

“[Tuesday’s] issuing of a Section 114 Notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents.

“Despite the challenges that we face, we will prioritise core services that our residents rely on, in line with our values of supporting the most vulnerable.”

Birmingham City Council has paid out almost £1.1bn in equal pay claims since a landmark case was brought against the authority in 2012.

The Supreme Court ruled in favour of 174 mostly female employees – working in roles such as teaching assistants, cleaners and catering staff – who had missed out on bonuses which were given to staff in traditionally male-dominated roles such as refuse collectors and street cleaners.

Image source, Getty Images

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The council says Birmingham residents can still expect core services to be delivered

The authority said its bill over equal pay claims was increasing at a rate of £5m to £14m per month.

It said it was in a position where it must fund the liability accrued to date but it did not have the resources to do so.

Because of the situation, it added, the council’s interim director of finance, Fiona Greenway, had issued the Section 114 notice, which confirmed there were insufficient resources to meet the equal pay expenditure and there were no other means of meeting the liability.

The leaders’ statement said: “The council’s senior officers and members are committed to dealing with the financial situation and when more information is available, it will be shared.”

What is a Section 114 notice?

Prof Tony Travers, a visiting professor in the London School of Economics’ Department of Government, a specialist in issues affecting local government, told the BBC that Birmingham had faced financial difficulties “on and off” for more than a decade due to equal pay and other challenges.

“Birmingham is a very important city within Britain and it is essential for the whole country that its services are good and that the city is seen to be motoring forward,” he said.

“The risk is that the city council’s provision of services will be trimmed further and further back and that has consequences not only to what the city looks like and feels like to live in, but also the reputational hit to the city as well.”

Image source, Getty Images

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Local government expert Tony Travers said Birmingham risked a hit to its reputation

Mr Travers added: “People around the city don’t need to worry that their bins aren’t going to be emptied or that social care doesn’t carry on.

“It will mean that no new spending can be committed, so there’s nothing additional from here on.

“But it also points to the fact that the budget for next year, 2024/25, will be terrifically difficult and it is not a problem that is going to go away.”