Birmingham City Council declares itself 'effectively bankrupt'

Published by Professional Social Work magazine, 05 September 2023

Birmingham City Council – the largest local authority in Europe - has declared itself effectively bankrupt. All new spending beyond statutory services has ceased with immediate effect.

The council has to meet a £760 million legal bill to settle equal pay claims and has an in-year financial gap of £87 million in its budget.

It has increasingly struggled to meet demand for adult social care, the housing crisis and children's services, against a backdrop of legal liabilities and a catastrophic IT implementation programme that left Birmingham residents with a £100 million bill.

The leader and deputy leader of the Labour-run council, Cllrs John Cotton and Sharon Thompson, said in a joint statement: “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.”

Downing Street described the developments as “concerning”, saying that “it’s for locally elected councils to manage their own budgets” and adding, “The government for its part has stepped in to provide support, an additional £5.1bn to councils in 23-24, which is more than a nine per cent increase for Birmingham city council.”

In a further statement the local authority said it will "tighten the spend controls already in place and put them in the hands of the section 151 officer to ensure there is complete grip.

"In June, the council announced it had a potential liability relating to equal pay claims in the region of £650 million to £760 million, with an ongoing liability accruing at a rate of £5 million to £14 million per month.

"The council is still in a position where it must fund the equal pay liability that has accrued to date… but it does not have the resources to do so."

John Cotton has claimed that essential services will continue.

Speaking on the day of the announcement, he said: "There are a series of essential services that we will absolutely continue to deliver. That is things like social care for children and adults, child safeguarding, waste collection, planning and housing services, road maintenance, library services - they remain essential services."

But he could not guarantee services would be delivered in the same way, adding "Clearly we've got to do some detailed work around finances in the council and how we deliver those services.”

The council now has three weeks to present its detailed budget recovery plans.

Austerity measures have also resulted in the council losing a billion pounds in funding over the last thirteen years.

The beleaguered authority has tried to divert disaster by issuing a recruitment freeze, a non-essential spending ban and a programme of voluntary redundancy to cut wage costs.

But the council has had to admit defeat and the issuing of a Section 114 means that officers cannot find a way forward without government intervention.

The news has been described as a "massive blow" to the city, council staff and residents.

Andy Street, Mayor of the West Midlands, said on social media platform X: "The news from Birmingham City Council is deeply disturbing and raises serious questions about the council's leadership and the decisions they have taken over the past decade.

"When news of the equal pay bill first broke, we were all assured by the Council that despite the seriousness of the situation they would produce a plan as to how they could settle the bill.

"However, more than two months on, no plan has emerged. Instead, we are simply presented... with what is effectively a bankruptcy notice and an admission of defeat.

"The City of Birmingham deserves so much better, and truthfully I am incredibly concerned that citizens - and the services they rely on - have been let down in this way.”

Richard Parker, Labour candidate to be the next mayor, said: "This is further evidence of the impact of over a decade of Conservative cuts to essential public services.

"Birmingham City Council has faced cuts of £1 billion since 2010 and at a time when demand for services and inflation spirals it is simply no longer able to take the strain.”

Birmingham City Council was ordered to pay compensation to 170 of its former employees in 2012.

The lawsuit left the council facing a £760million bill to settle the claims. The council has already paid out £1.1billion to settle equal pay claims.

At least 26 councils are at risk of bankruptcy within the next two years, according to the Special Interest Group of Municipal Authorities (Sigoma), a collective of 47 urban councils.

Prior to Birmingham’s announcement, a Section 114 was issued by Hackney council, in east London, in 2000, and Northamptonshire county council in 2018.

Croydon council issued its third section 114 notice in November 2021, and Thurrock in December 2022.

Birmingham City Council’s statement in full:

“Birmingham City Council has issued a s.114 Notice as part of the plans to meet the Council’s 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.

“On that basis the Council’s Interim Director of Finance, Fiona Greenway, (s.151 – Chief Finance Officer) 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.

“The Council will tighten the spend controls already in place and put them in the hands of the Section 151 Officer to ensure there is complete grip. The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.

“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.”