Vital services safe – leader of 'bankrupt' Birmingham council

By Sophie Madden & Rebecca Woods

BBC West Midlands reporters

The leader of Birmingham City Council insisted vital services would be protected as the authority declared itself effectively bankrupt.

The largest local authority in Europe is to halt all spending other than services it must provide by law such as social care, waste collections and protecting the vulnerable.

The Labour-run council needs to settle a £760m bill for equal pay claims.

Its leader John Cotton said “tough and robust decisions” would be made.

There are fears cuts could affect roads, parks, libraries and cultural projects, while a question mark hangs over the council’s funding of the 2026 European Athletics Championships planned for the city’s Alexander Stadium.

The council, which faces an immediate budget shortfall of £87m this year, has also blamed the implementation of its Oracle IT system for its desperate situation.

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.

Mr Cotton, who is not currently in the city due to “long standing family commitments”, insisted to BBC Radio WM the council would “continue to deliver on essential services like children’s safeguarding and social care, social care for adults, education, waste collection, road maintenance and library services” for the city’s 1.1 million taxpayers.

The leader claimed he had only learned of the financial crisis at the same time as other councillors during Tuesday morning’s cabinet meeting.

The council has declared a Section 114 notice, previously issued by other councils including Croydon and Thurrock, which means a local authority has judged itself to be in financial distress and can no longer balance its budget.

In a statement issued earlier, he and the deputy leader of the Labour authority, Sharon Thompson, said the move was a “necessary step as we seek to get our city back on a sound financial footing”.

Ms Thompson said the council would “do everything we can to protect the services our residents rely on”.

But taxpayers have spoken of their fears at where the axe may fall as the council halts all but essential spending.

Kynton Swingle, from the Fox Hollies Community Association in Acocks Green, said it could mean groups such as theirs were unable to continue key services.The organisation offers a range of support including free meals for youngsters and as a warm hub for people struggling to heat their homes.The financial freeze would mean a “really challenging environment” and “there is definitely concern”, Mr Swingle added.

Posting on X, formerly Twitter, Maria Smith described the news as “horrendous” and said the impact of it was “going to be immense”.

“My father was waiting for a lift to be installed under a grant. I don’t know if this is going to happen now. Oh god, this is awful,” she added.

Mr Cotton and Ms Thompson said it was “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”.

“We implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support.”

The Section 114 was crucial to be able to “build a stronger city for our residents”, they added, promising to protect the “most vulnerable”.

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.

Mr Cotton said: “My priority now is ensuring that we have a financial recovery plan in place that can meet the great demands that are placed upon the council and continue to provide the services that the city relies on.”

The leader confirmed the council was working with the union to introduce a thorough job evaluation scheme to settle the equal pay row by April 2025.

He insisted that despite the bleak outlook, Birmingham still had a bright future ahead with “an economy that is growing and creates great opportunities for everybody”.

Andy Street, the Mayor of the West Midlands, said the news was “deeply disturbing” for residents and called for an “inquisition” into what had happened.

“It is no secret that local authorities up and down the country have faced significant cuts over the past decade – even if the funding from government has been improving in recent years – and it has been a real challenge to keep services running to the standard that people expect,” he said.

“However, the huge majority of councils of all political colours are managing to achieve this, with bankruptcy extremely rare.”

Downing Street described the announcement as “concerning” for Birmingham residents and said it was important for the council to “provide reassurances”.

A spokesman for Prime Minister Rishi Sunak said it was for locally elected officials “to manage their own budgets”, adding the government had provided support to councils.

In a series of tweets, Minister for Local Government Lee Rowley said the department had been aware of significant problems at the council for some time and the issuing of the Section 114 notice was “hugely disappointing but not unexpected”.

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.”

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.

• 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.”

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.”

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.

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.

Follow BBC West Midlands on Facebook, Twitter and Instagram. Send your story ideas to: newsonline.westmidlands@bbc.co.uk

Related Topics