Birmingham City Council effectively declares itself bankrupt as demands for equal pay pile up

Birmingham residents have been warned that “all bets are off” over which services could be cut after the city council declared itself bankrupt.

The Labor council may have to close libraries, reduce the frequency of bin collections or increase council tax after issuing a section 114 notice – meaning it cannot meet its financial obligations.

The council blamed £760 million in equal pay claims, the cost of a new IT system and years of funding cuts by successive Tory governments for its financial woes. It has a financial gap in its budget of £87m for the year.

A Birmingham City Council spokesman said: “Birmingham City Council has issued a 114 notice as part of plans to meet the council's financial obligations in relation to equal pay claims and an in-year financial gap within its budget which it is currently in the region of £87m.

“In June, the council announced that it had a potential liability in relation to equal pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month. The council is still in a position where it needs to fund the equal pay liability that has accrued to date (in the region of £650m to £760m) but does not have the resources to do so.”

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A section 114 notice means Birmingham City Council, which is the biggest authority in the UK and Europe, will stop all new spending, with the exception of protecting vulnerable people and statutory services.

Jonathan Werran, chief executive of Localis, an independent think tank, said a range of services for residents would now be in the firing line. “It's like being in a hot air balloon and then throwing stuff out of the basket to keep it in the air … all bets are off,” he said.

Services likely to face budget cuts include street cleaning, parks and maintenance, recreation, non-social care children's services, libraries and even how often your bins are collected.

Geoff Winterbottom, head of research and policy at Sigoma, which represents 47 local authorities in England, said the council could also raise council tax to help its financial woes.

At present, councils can only increase local tax by 5 per cent without a referendum. However, due to its precarious financial situation, Mr Winterbottom said the council could ask the Government to allow it to raise it above the 5 per cent level without the need for a local referendum.

Sharon Thompson, deputy leader of Birmingham City Council, told councilors at a meeting on Tuesday that the announcement was “a necessary step as we look to get our city back on a sound financial footing”.

He said: “I want to stress that despite the significant challenges we face, we will prioritize the essential services our residents rely on, in line with our values ​​of supporting the most vulnerable in this city.”

In June, the council revealed it had paid out almost £1.1bn in equal pay claims over the past 10 years after losing a High Court case in which female staff said they were not getting bonuses given to men at the same rate. pay Grade.

The council has a current claims-related liability of between £650m and £760m, raised at a rate of £5m to £14m per month. The council also said “Birmingham has had £1 billion of funding taken away by successive Conservative governments”.

Conservative opposition leader Robert Alden said it was “cloud cuckoo land” to say Birmingham's problems were being replicated across the country and that the situation was “shameful for this great city”.

In a statement he said: “Labour's failure in Birmingham has become clear to all, what Labor promised was a golden decade to voters in 2022 is turning out to be based on budgets in 20/21 and 21/22 that have no balance and no were funded.

“Combined with Birmingham Labor's refusal to deal with equal pay over the last decade, this has created this mess where residents will now miss out on valuable services and investment.”

The first section 114 notice was issued by Hackney Council in 2000, with Northamptonshire County Council following suit in 2018.

Croydon council issued its third section 114 notice in November 2021, while Thurrock in Essex took the plunge in December last year after struggling to borrow large sums for solar investment.

Woking also issued a section 114 in June this year due to what it said was “an extremely serious financial shortfall due to its historical investment strategy which resulted in unaffordable borrowing, insufficient steps to repay that borrowing and high values ​​of non-recoverable loans”.

Shaun Davies, Chairman of the Local Government Association (LGA) said: “Councils in England face a funding gap of almost £3 billion over the next two years just to keep services afloat. Councils' ability to mitigate these intense pressures is continually hampered by one-year funding arrangements, one-off funding pots and uncertainty due to repeated delays in funding reforms.

“The government needs to come up with a long-term plan to adequately fund local services. This must include greater certainty of funding for councils through multi-year arrangements and more clarity on financial reform so they can plan effectively.”