Birmingham City Council bankruptcy: What does it mean for the city?

Birmingham City Council has issued a Section 114 notice - an admission that it cannot manage its catastrophic financial crisis without help. Credit: ITV Central

This is an extraordinary move by Birmingham City Council

Its financial nightmare has been known for some time after being hit with a £1bn equal pay bill.

But Tuesday's issuing of a Section 114 notice to the government is very clear - it means the council is effectively bankrupt.

So what happens when a S114 notice is issued? 

It means that no new expenditure is permitted.

There are exceptions for funding statutory services, including safeguarding vulnerable people, and 'existing commitments and contracts' will continue to be honoured, according to the Local Government Finance Act 1988, Section 114 (3).

It says: "Council officers must therefore carry out their duties in line with contractual obligations and to acceptable standards while being aware of the financial situation."

But the legislation is clear - any spending that is not essential or which can be postponed should not take place. 

How has it reached this point?

The pressures have been linked to a £760m bill to settle equal pay claims.

To date, the local authority has paid a total of £1.1bn settling equal pay claims after a 2012 Supreme Court ruling found hundreds of mostly female employees had not received the same bonuses offered to their male counterparts.

However, analysis following the implementation of a new IT system, Oracle, found the council has an equal pay liability in the region of £650m and £760m, which is growing by between £5m and £14m a month.

In a statement on their website, Birmingham City Council apologised for their failure to get the situation under control and warned there would be "significantly fewer resources available" to the council going forward.

Andy Street, Mayor of the West Midlands, has issued a statement on the Council's declaration, saying it "raises serious questions about the Council’s leadership and the decisions they have taken over the past decade."

He continued: “When the news of the equal pay bill, which according to reports has now spiralled to more than £1.1 billion, first broke, we were all assured by the council that despite the seriousness of the situation they would produce a plan as to how they could settle the bill.

“I stood ready to support and help once that plan had been produced, irrespective of political colours. However, more than two months on, no plan has emerged.

“The City of Birmingham deserves so much better, and truthfully I am incredibly concerned that citizens, and the services they rely on, have been let down in this way.”

What happens next for Birmingham City Council?

Birmingham City Council will now have to prioritise core services, while other services across the city lose the funding they rely on.

So far, the government has refused to come to the council's rescue.

Now the ball is in their court.

What services does the council currently run?

  • Adult Education Service

  • Ageing well services

  • Parks, leisure and wellbeing

  • Supporting healthier lives

  • Voluntary and community health and care services in Birmingham

What other councils have declared bankruptcy before and what's happened?

The first S114 notice was issued by Hackney Council in 2000.

Following an 18-year period, the next one was issued by Northampton council in 2018.

Conservative-led Croydon council in south London has also declared bankruptcy three times in two years. Thurrock in Essex became the largest bankruptcy in local government history last year, and a string of others have declared bankruptcy including Slough, Woking, and Northumbria County Council.

Meanwhile, one in 10 Special Interest Group of Municipal Authorities (SIGOMA) councils, including Stoke, are considering making a Section 114 notice, a report on Monday revealed.

What is SIGOMA and what have they said?

SIGOMA is the Special Interest Group of Municipal Authorities representing 47 urban authorities in the northern, midland and south-coast regions of England.

They have hit out at the funding crisis for councils and are also calling on the government to secure more finances towards children's services.

Councillor Sir Stephen Houghton, Chair of SIGOMA, said: "The government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last twelve months.

"At the same time as inflationary pressure, councils are facing increasing demand for services, particularly in the care sector."

'The funding system is completely broken'

Councillor Houghton added: "Pay increases are putting substantial pressure on budgets, and so the government must ensure that local authorities have the additional funding they need to fully fund these pay increases or risk impacting future service delivery.

"The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.

"The government should provide additional in-year funding to relieve inflationary pressure, including for the pay deal this year.

"This additional funding should also be targeted toward children’s services, which is the greatest area of pressure for our members.

"Councils are facing severe uncertainty - the government must deliver clarity on funding in the coming years, including on proposed reforms that are long overdue."

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