Birmingham City Council Effectively Declares Bankruptcy

People employ social distancing as they queue for a bakery in Birmingham city centre in central England on the morning of March 21, 2020. (Justin Tallis/AFP via Getty Images)

Birmingham City Council has declared itself effectively bankrupt after it failed to settle a £760 million bill on equal pay claims.

The council has issued a Section 114 notice, announcing that all new spending, with the exception of protecting vulnerable people and statutory services, will stop.

In a statement, published on Tuesday, the council said it couldn’t meet its £650 to £760 million liability relating to equal pay claims in the region.

This follows a 2012 Supreme Court ruling (pdf) in favour of mostly female employees of the council, who argued they were denied bonuses given to male colleagues.

In the last 10 years, the council spent over one billion on the equal pay claims, with an ongoing liability accruing at a rate of five to £14 million per month.

The council’s interim director of finance, Fiona Greenway has confirmed “insufficient resources” and no other means of meeting the million-pound liability.

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Council leader John Cotton said they 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 Birmingham.

Together with the council deputy leader, Sharon Thompson, Mr. Cotton said that issue of a Section 114 notice was a “necessary step as we seek to get our city back on a sound financial footing.”

Birmingham council is the largest local authority in the UK and Europe, serving 1.1 million taxpayers. According to its leaders, the council has been facing long-standing issues.

“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,” a statement by Mr. Cotton and Ms. Thompson said.

The two council leaders, who are both members of the Labour Party, confirmed that rigorous spending controls were implemented in July. At the time, they had also requested the local government association for additional strategic support.

Minister for local government, Lee Rowley, has called the situation “hugely disappointing, but not unexpected.”

In a series of posts on X, formerly known as Twitter, Conservative MP Mr. Rowley, said the government has been aware of the council’s problems for some time. They were “caused by a failure to deal with historic pay issues and a bungled IT implementation.”

Birmingham Council has struggled with implementing its Oracle ERP system, a software that manages an organisation’s internal functions, such as accounting and HR processes.

The initial cost of the system was around £19 million but after delays and attempts to customise it, the council was faced with an estimated bill of £100 million.

Mr. Rowley said he wrote to the council last week, “reminding them of their best value duty to ensure taxpayers’ money is spent wisely.”

He added that issues created by the council leadership must be dealt with in a “transparent and clear way.”

“The council will continue to deliver services to the residents of Birmingham whilst we consider the issues that they have and how fiscal responsibility can be restored to the city council. Taxpayers deserve better,” concluded the minister.

Birmingham council is run by 101 councillors, including 65 Labour, 22 Conservative, 12 Liberal Democrat, and two Green.

Leader of the Conservative opposition Robert Alden at Birmingham council has criticised Labour’s “refusal to deal with equal pay over the last decade.” It created a “mess” and affected the residents, he added.

Andy Street, the mayor of the West Midlands, acknowledged that local authorities have been struggling in the past decade, faced with budget cuts. However, he argued, the majority of councils “of all political colours” have been managing their duties.

Mr. Street suggested there needs to be an “inquisition” into what happened with the Birmingham council.

A spokesperson for the prime minister Rishi Sunak said it was for locally elected officials “to manage their own budgets.”

An independent governance review of the council will be delivered in the coming weeks, the spokesman added.