- Birmingham City Council Declares Financial Distress
- Massive Equal Pay Claims Lead to Budget Crisis
- Political Disputes and Implications for Residents
The Birmingham City Council has formally proclaimed itself to be in financial distress, confirming in a statement that all new spending, except protecting vulnerable individuals and providing statutory services, must immediately cease.
After receiving a £760 million bill to resolve equal pay claims, Birmingham City Council has effectively declared bankruptcy.
The council stated that it had issued a section 114 notice requiring the immediate cessation of all new spending, except expenditures for the protection of vulnerable people and mandatory services.
In a statement declaring financial distress, the local government said it would “tighten the already-in-place spending controls and place them in the hands of the section 151 officer to ensure complete control.”
The Labour-controlled council is the largest local government in Europe, with a total of 101 councillors (65 Labour, 22 Conservative, 12 Liberal Democrat, and 2 Green).
The statement read: “Birmingham City Council has issued an 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 lies in the region of £87m.
“In June, the council disclosed a potential liability related to equal pay claims in the range of £650 million to £760 million, with a monthly accrual rate of £5 million to £14 million.
“The council is still in a position where it must fund the accrued equal pay liability (in the range of £650 million to £760 million), but it lacks the resources to do so.”
It continued, “The council’s senior officers and members are committed to addressing the financial situation, and more information will be shared when it becomes available.”
Pay equity crisis
In recent months, according to Sky’s Midlands correspondent Becky Johnson, the council has been discussing the administration of finances in Britain’s second-largest city and the equal pay crisis.
It follows a 2012 Supreme Court ruling that found in favor of predominantly female Birmingham City Council employees and that a bonus scheme given to staff in certain positions favored those who were predominantly male.
Johnson stated, “They have paid out these claims over the years, but the bill is now increasing by approximately £14 million per month and stands at £760 million, which the council cannot afford to spend.”
“We are aware that during the summer they ceased essential spending in an attempt to pay this bill without taking this measure.”
She stated that the section 114 notice has “serious” repercussions and that the city council’s investment in the city will be drastically reduced while it figures out how to pay the debt.
Political Effects
“This has sparked a major political dispute,” Johnson continued. “The leader of the Conservative group has accused the Labour-led council of failing to address the issue of equal pay and of misleading the public about the state of the city’s finances over the past few years.”
Robert Alden, opposition leader for the Conservatives, stated, “Labor’s failure in Birmingham is now evident to all. The golden decade that Labour promised to voters in 2022 turns out to be contingent on unbalanced and unfunded budgets in 20/21 and 21/22.
In conjunction with Birmingham Labour’s refusal to address equal pay over the past decade, this debacle has resulted in residents losing valuable services and investments.
He added, “Because Birmingham Labour has no control over their mess and no ability to fix it, the Labour political leadership no longer has the final say on spending control.”
“Unprecedented financial difficulties”
In a joint statement, council leader John Cotton and his deputy Sharon Thompson said, “Like local authorities across the country, it is clear that Birmingham City Council faces unprecedented financial challenges, ranging from huge increases in adult social care demand and dramatic reductions in business rates income to the effects of rampant inflation.
“In July, we instituted stringent spending controls, and we have requested additional strategic support from the Local Government Association.
“Today’s issuance of a Section 114 Notice is a necessary step as we work to restore our city’s financial stability to create a stronger city for our residents.
By our values of supporting the most vulnerable, we will prioritize essential services that our residents rely on despite the challenges we face.
Other municipalities that have declared bankruptcy
In 2000, Hackney Council issued a section 114 notice, followed by Northamptonshire County Council in 2018.
Croydon issued its third section 114 notice in two years in November 2022, whereas Thurrock, in Essex, took the same action in December 2018 after it ran into problems borrowing significant sums to invest in solar energy.
Woking also issued a section 114 in June of this year, citing “an extremely serious financial shortfall due to its historic investment strategy, which has resulted in unaffordable borrowing, inadequate steps to repay that borrowing, and high values of irrecoverable loans”
“Worrisome” for residents
The official spokesman for Prime Minister Rishi Sunak stated, “Clearly local government is vital to our communities, and we are aware that they have been experiencing pressures. The government has provided councils with an additional £5.1 billion in 23/24, which represents an increase of more than 9 percent for Birmingham City Council.
Also it is the responsibility of locally elected councils to manage their budgets. I am aware that the department has been in regular contact with them to this end, has expressed concern about their governance structures, and has requested assurances from the council leader regarding the best use of taxpayer funds.
He acknowledged that Birmingham has a “particular problem with equal pay settlements” and stated that ministers have “commission[ed] an independent governance review that will issue its findings in the coming weeks.”
“It will be unsettling for the citizens of Birmingham, so the city council must provide reassurance and carry out the department’s requests,” he added.
