The council is to stop all new spending, with the exception of statutory services such as the protection of vulnerable people
By Sophie Madden
BBC West Midlands reporter
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.
The pressures have been linked to a £760m bill to settle equal pay claims.
In a joint statement, the leader and deputy leader of the Labour authority said the move was a “necessary step as we seek to get our city back on a sound financial footing”.
A Section 114 notice, previously issued by other councils including Croydon and Thurrock, means a local authority has judged itself to be in financial distress and can no longer balance its budget.
In their statement, council leader John Cotton and deputy leader Sharon Thompson said the authority was also facing financial pressures due to problems with the implementation of its Oracle IT system.
Intended to streamline council payments and HR systems, the flagship system was expected to cost £19m but after three years of delays it was revealed in May it could cost up to £100m.
“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.
“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.”
When the council halted non-essential spending, deputy leader Councillor Sharon Thompson said it would do everything to protect services residents rely on
Announcing the notice at a cabinet meeting earlier, Ms Thompson said: “Whilst the council is facing some significant challenges, the broader city is still very much open for business.
“We are welcoming people as they come along and we have got vibrant sectors across the piece.”
A further extraordinary meeting will be held on 26 September, and negotiations with the government’s Department for Levelling Up, Housing and Communities (DLUHC) will continue over the coming months to determine an approach to financing the liability, the authority said.
The BBC has contacted the DLUHC for comment.
Robert Alden, Conservative opposition leader on the council, said the authority had “failed to show the proper speed and urgency needed to tackle equal pay”.
Liberal Democrat group leader Roger Harmer added: “Every one of Birmingham’s citizens will feel the pain of this decision as we move into unchartered waters.”
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The Section 114 notice means funding of statutory services – such as social care and education – and existing commitments and contracts will continue to be honoured.
The city council had already stopped all non-essential spending in July when it revealed it still faced a bill of up to £760m.
However, what it defined as non-essential provision was unclear, and could affect parks, roads, libraries and cultural projects.At the time, Ms Thompson said the council would “do everything we can to protect the services our residents rely on”.
Image source, Getty Images
The council says Birmingham residents can still expect core services to be delivered
The 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.
The authority said the cost of the pay claims was increasing at a rate of £5m to £14m per month and it must fund the liability accrued to date but did not have the resources to do so.
Because of its predicament, 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?
- Under the Local Government Finance Act 1988, if a council’s chief financial officer believes the authority cannot meet its expenditure commitments from its income, they have to issue such a notice
- They do not need the consent of councillors to do so
- Local authorities in the UK cannot go bankrupt but the issuing of the notice is often described as “being effectively bankrupt”, meaning they cannot make new spending commitments and must meet within 21 days to discuss next steps
- No new expenditure is permitted with the exception of funding statutory services, including safeguarding vulnerable people, but existing commitments and contracts will continue to be honoured
- Most councils in such a position pass an amended budget, reducing spending on services
- Thurrock, Croydon, Slough and Northamptonshire have issued section 114 notices in recent years
Prof Tony Travers, a specialist in local government at the London School of Economics, said Birmingham City Council 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 told BBC Radio WM.
“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, LSE
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.”
Image source, LDRS
The GMB union said thousands of council workers would be worried about the future of their jobs
GMB, the biggest union among Birmingham City Council staff, said the announcement was a “humiliating admission of failure” on the part of the council’s leadership.
“Not only are they responsible for creating this crisis through years of discriminating against their own staff, but even they no longer believe themselves capable of fixing it,” organiser Michelle McCrossen said.
“For decades the council has stolen wages from its low-paid women workers, running up a huge equal pay liability that has brought Birmingham to the brink.
“Thousands of city employees will be worrying for the future of their jobs and of the essential services that they provide for the people of Birmingham.”
She said the union would “fight” for pay justice for its members and to hold those responsible for the “crisis” to account.
Dr Philip Catney, senior lecturer in politics and Keele University, said: “What we’ve seen in the last 13 years is a progressive weakening of the budget base for local authorities.
“So we’ve seen the recalculation of the way in which the central government block grant, that’s the money that goes from national government to local authorities, has been significantly reduced nearly by half in the last decade.”
Dr Philip Catney says lots of councils are struggling as they plan for budgets next year
“Councils have had to try and come up with their own creative solutions or issues to try and manage this financial vice they’re in,” he added.
“This is really now hotting up at the moment as councils start to look at budget setting for the next year, and have realised. Actually, there’s not much money left in the reserves
“There’s not much fat left to cut from the from the bone.”
Analysis
Rob Mayor, Birmingham political reporter
When Birmingham City Council first announced plans to cease all non essential spending in July, it sounded like it was issuing a section 114 notice, effectively bankruptcy in all but name.
Today, all hope of avoiding that faded away.
The council is unable to balance its budget, its financial problems are huge and, at the moment, getting bigger at rate of up to £14m a month.
Last year’s triumphant Commonwealth Games were hailed as the start of a “golden decade” for the second city, but instead residents now face a future of cuts to services instead.
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