Birmingham City Council declares financial distress over multimillion-pound liabilities

Birmingham City Council has declared itself in financial distress over multimillion-pound liabilities to settle equal pay claims.

In a statement on Tuesday, Europe’s largest local authority confirmed that it had issued the declaration that it cannot balance its books.

It said all new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately.

A Birmingham City Council spokesperson said: “Birmingham City Council has issued a s.114 notice as part of the plans to meet the council’s financial liabilities relating to equal pay claims and an in-year financial gap within its budget which currently stands in the region of £87 million.

“In June, the council announced it had a potential liability relating to equal pay claims in the region of £650 million to £760 million, with an ongoing liability accruing at a rate of £5 million to £14 million per month.

“The council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650 million to £760 million), but it does not have the resources to do so.”

The spokesperson said: “The council will tighten the spend controls already in place and put them in the hands of the section 151 officer to ensure there is complete grip.

“The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.

“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.”

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

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

“Birmingham City Council faces longstanding issues, including the council’s historic equal pay liability concerns and the implementation of the Oracle ERP system which have been compounded by the reality that Birmingham had £1 billion of funding taken away by successive Conservative governments.

“Local government is facing a perfect storm. Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes, to the impact of rampant inflation.

“Whilst the council is facing significant challenges, the city is very much still open for business and we’re welcoming people as they come along.”

Leader of the Conservative opposition Robert Alden said it was “cloud cuckoo land” to say Birmingham’s problems are being replicated across the country and the situation was “embarrassing for this great city”.

In a statement, he said: “Labour’s failure in Birmingham has become clear for all to see, what Labour pledged was a golden decade ahead to voters in 2022 turns out to be based on budgets in 20/21 and 21/22 that did not balance and were unfunded.

“Combined with Birmingham Labour’s refusal to deal with equal pay over the last decade this has created this mess where residents will now lose valuable services and investment.”

He added: “Birmingham Labour have no grip of their mess and no ability to fix it, hence why the final say on spending control has now been removed from the Labour political leadership.”

A government source told the PA News Agency: “Sadly this is another example of a Labour administration running out of other people’s money and a red alert warning for a Keir Starmer-led government.”

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 step in December last year after it got into difficulties over borrowing large sums to invest in solar energy.

Woking also issued a section 114 in June this year due to what it said was “an extremely serious financial shortfall owing to its historic investment strategy that has resulted in unaffordable borrowing, inadequate steps to repay that borrowing and high values of irrecoverable loans”.

Downing Street acknowledged that Birmingham City Council having declared itself in financial distress will be “concerning” for residents.

The Prime Minister’s official spokesman said: “Clearly local government is vital to our communities and we know they have been facing pressures.

“The Government for its part has stepped in to provide support, an additional £5.1 billion to councils in 23/24, which is more than a 9% increase for Birmingham City Council.

“Clearly it’s for locally elected councils to manage their own budgets, I know the department has been engaging regularly with them to that end and has expressed concern about their governance arrangements and has requested assurances from the leader of the council about the best use of taxpayers’ money.”

He acknowledged Birmingham has a “particular issue around equal pay settlements” and said ministers have “commissioned an independent governance review which will report in the coming weeks”.

“It will be concerning for the people of Birmingham and it is important that the council provide reassurance and deliver on what has been requested by the department,” the spokesman added.

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