Birmingham City Council declares itself ‘effectively bankrupt’

Birmingham City Council, the largest local authority in the country, has essentially declared insolvency by issuing a section 114 notice, indicating that it lacks the means to balance its budget.

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

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

Birmingham City Council issued the notice as part of the plans to meet the its financial liabilities relating to Equal Pay claims and an in-year financial gap within its budget which currently stands in the region of £87m.

In June, the Council announced that it had a potential liability relating to Equal Pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month.

The Council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650m to £760m), but it does not have the resources to do so, the statement read.

On that basis the Council’s Interim Director of Finance, Fiona Greenway has issued a report under section 114(3) of the Local Government Act, which confirms that the Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability.

A section 114 notice means a prohibition on any new spending, except for safeguarding vulnerable individuals and upholding essential statutory services.

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.”

In 2014, numerous women employed by the Council were awarded compensation after a successful equal pay claim. They contended that they had been denied bonuses that were given to men in the same pay grade, and these claims extended over several years.

Furthermore, earlier this year, the Council leader confirmed that issues with a new IT system, impacting payments, data management, and background checks, would necessitate a cost of up to £100 million to rectify.

The Council also claimed that about “£1bn of funding” had been “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.

Recently, it came to light that at least 26 councils in some of the most economically disadvantaged regions in Britain are facing the potential of financial insolvency within the next two years, according to the Special Interest Group of Municipal Authorities (Sigoma), a consortium comprising 47 urban councils.

Over the past two years, there have been several financial crises within local government, including Slough in 2021, followed by Croydon and Thurrock in 2022. Additionally, Woking revealed a budget deficit of £1.2 billion earlier this year.