Birmingham residents are facing uncertain times as the city council finds itself in dire financial straits, effectively declaring bankruptcy. This Labour-run council is grappling with the daunting possibility of having to make severe cutbacks, including the potential closure of libraries, reduced frequency of garbage collection, or even raising council taxes. The ominous Section 114 notice issued by the council signifies its inability to meet its financial obligations.
The financial turmoil plaguing Birmingham City Council is attributed to a multitude of factors, with equal pay claims amounting to a staggering £760 million at the forefront. Coupled with the expenses incurred from a new IT system and years of funding cuts from successive Tory governments, the council is now grappling with an in-year financial gap of approximately £87 million.
To shed light on the gravity of the situation, a spokesperson for Birmingham City Council explained, “The council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650m to £760m), but it does not have the resources to do so.”
Under this Section 114 notice, Birmingham City Council, the largest authority in the UK and Europe, is forced to halt all new expenditures, except for essential services dedicated to safeguarding vulnerable individuals and statutory obligations.
Jonathan Werran, Chief Executive of Localis, an independent think-tank, starkly illustrates the precarious situation: “It’s like being up in a hot air balloon and then you throw things out of the basket to keep it up in the air… all bets are off.” This sentiment underscores the uncertainty that now hovers over various services, which could potentially face budget cuts, including street cleaning, park maintenance, leisure, select children’s services, libraries, and the regularity of garbage collection.
Geoff Winterbottom, Head of Research and Policy at Sigoma, representing 47 urban authorities in England, suggests that the council might explore the option of raising council tax to address its financial woes. While councils typically can only increase local taxes by a maximum of 5 percent without a referendum, the council’s dire financial straits might prompt them to seek government approval to exceed this limit without local polls.
Sharon Thompson, Deputy Leader of Birmingham City Council, stressed the necessity of the Section 114 notice, emphasizing the council’s commitment to preserving core services relied upon by residents, especially those who are vulnerable.
In June, the council’s financial burden became glaringly evident when it disclosed payments exceeding £1.1 billion in equal pay claims over the last decade, following a Supreme Court case where female employees contested the denial of bonuses awarded to male counterparts on the same pay scale. This ongoing liability continues to accrue at a rate of £5 million to £14 million each month.
Leader of the Conservative opposition, Robert Alden, criticizes the situation, asserting that Birmingham’s issues are unique and shouldn’t be extrapolated nationwide. He points to Labour’s management and their failure to address equal pay concerns over the past decade as contributors to the city’s predicament.
The issuance of a Section 114 notice is a rare occurrence, with Hackney Council being the first in 2000, followed by Northamptonshire County Council in 2018. Croydon Council issued three such notices in November 2021, while Thurrock in Essex resorted to this step in December of the same year due to financial difficulties related to substantial investments in solar energy. Woking also joined this list in June due to a “serious financial shortfall” arising from historic investment strategies and borrowing practices.
Shaun Davies, Chair of the Local Government Association (LGA), underscores the broader funding challenges faced by councils across England. With a funding gap of nearly £3 billion in the next two years to maintain current services, he calls for a long-term funding plan, including multi-year settlements and financial reform clarity to allow councils to plan effectively.
