Birmingham City Council is to stop all new spending, with the exception of money protecting vulnerable people and statutory services
By Sophie Madden
BBC News, West Midlands
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 judges 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”.
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,” they 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.”
Image source, Getty Images
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?
- 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
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