Birmingham, Europe’s largest local authority has effectively declared itself bankrupt, halting all spending except for essential services.

Niladri Singh

Birmingham, Europe’s largest local authority has effectively declared itself bankrupt, halting all spending except for essential services.

The Birmingham Council issued a Section 114 notice on 5th September, before announcing its bankruptcy two days later.

Britain’s second-largest city, which provides services for more than 1.4 million people, projected a deficit of £87 million ($109 million) for the year 2023/24.

Why is Birmingham bankrupt?

In April 2010, 500, mostly female, council staff won their case for equal pay after a 2012 Supreme Court ruling found hundreds of female employees had not received the same bonuses offered to their male counterparts.

Since then, the Labour-run council has paid out almost £1.1 billion in equal pay claims. The council now has a £760 million ($954 million) bill, which is increasing by up to £14 million every month.

Mismanagement of equal pay is not the only cause of crisis for the council. The new cloud-based IT system Oracle has also proven problematic. With problems with its instillation, along with a three-year delay in implementation, the IT system is now expected to cost £100 million — five times its original estimate of £19 million.

West Midlands Mayor Andy Street issued a statement stating that the council’s decision “raises serious questions about the Council’s leadership and the decisions they have taken over the past decade.”

Cllr Sharon Thompson, deputy leader of the Council addressed the concerns at a cabinet meeting on Tuesday 7th September: “The local government is facing a perfect storm.

“Like councils across the country, it is clear that this council faces unprecedented financial challenges.

“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,” she added.

The city, which hosted last year’s Commonwealth Games, is also scheduled to host the 2026 European Athletics Championships. The impact of this notice on the 2026 event remains uncertain.

According to the government, the Commonwealth Games contributed at least £870 million to the UK economy, but the championship may be a “challenge too far” for a council rigged with such difficulties.

Council leader John Cotton cited various budgetary pressures for Birmingham’s bankruptcy, including rising demands for adult social care, decreased business rates income, the effects of inflation, and a £1 billion reduction in local government funding.

What is a section 114 notice?

Under the Local Government Finance Act 1988, a 114 notice is issued when a council’s chief financial officer believes it doesn’t have enough money to meet its spending commitments. Councillors do not need to agree to this notice before it is implemented.

Once issued, the council can’t sign off on any new spending and must meet within 21 days to discuss the next steps. However, statutory services are not included in the restrictions and existing commitments and contracts must be honoured.

Most councils in such a position pass an amended budget, reducing spending on services.

Have councils declared bankruptcy before?

Sections 114 notices have steadily increased in the last five years, reflecting a deepening crisis in government funding and the drive towards privatisation and commercial speculation.

The first section 114 notice was issued by Hackney Council in 2000.

Thurrock in Essex became the largest bankruptcy in local government history in December 2022, after the council racked up a debt of £469 million.

Woking, Croydon and Slough are among other councils to have made similar announcements following botched investment projects and deep funding cuts.

The Prime Minister’s official spokesperson said, “Councils are the ones who are first and foremost responsible.”

The government said it has provided access to “additional support” and is “in contact” with the Birmingham City Council, requesting further details.

What’s next for Birmingham City Council?

Birmingham council is to agree on a “budget recovery plan” on 25th September, with Council leader John Cotton warning of “tough and robust decisions,” signalling further cuts to services.

In a meeting with Levelling Up Secretary Michael Gove, the councillor apologised to the people of the city and insisted he had “no prior notice” of its “bankruptcy” crisis.

There is much speculation that the council may be forced to sell off its assets to generate funds to help the financial crisis.

The first full council meeting since the announcement was held on 12th September, at which Cotton said “an improvement board with specialist experts” was being brought in.

Mayor Andy Street recommended a three point plan to the government that includes requesting permission to use asset sales to meet equal pay liabilities as well as putting together experts to oversee a rescue plan, and holding a full and transparent independent inquiry into the council.

In a bid to save job cuts, on 12th October Birmingham City Council reached an agreement with trade unions GMB, Unison and Unite over a job grading scheme.

“I am delighted that GMB, Unison and Unite have all signed the addendum which sets out how we will carry out the Job Evaluation Scheme at Birmingham City Council,” said John Cotton.

“This is a huge step forward as we seek to put our council back on a sound financial footing.”

What assets does Birmingham City Council have?

Birmingham City Council currently hold a 7 per cent share in Birmingham Airport, which could be sold to make up funds. The council has previously sold its assets, such as their stake in the famous NEC venue.

The council also owns around £2.4 billion in property, including the historic council house in Victoria Square, around 26,000 acres of land and 6,500 property assets (not including housing, infrastructure and schools). All of which could potentially now be sold to generate further funds.

However, the Chief Executive of Birmingham City Council Deborah Cadman has said the authority “must not fall into the trap of just selling everything.”

Historic England said it had, along with Arts Council England and the National Lottery Heritage Fund, called on Ms Cadman and incoming commissioners to ensure the city’s heritage was “preserved and prioritised” in discussions about the future.

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Featured image courtesy of Elliott Brown via Flickr. No changes were made to this image. Image license found here.

Originally from India, Niladri holds an MA degree in Media, Journalism and Communications from Cardiff University. She is a writer and video editor at EmpoWord Journalism and talks about politics, films and culture.

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