Birmingham City Council, the largest local authority in Europe, effectively declared bankruptcy after being hit by a crippling bill from an equal pay claim.
(Bloomberg) — Birmingham City Council, the largest local authority in Europe, effectively declared bankruptcy after being hit by a crippling bill from an equal pay claim.
The Labour-run administration representing the UK’s second-largest city issued a so-called 114 notice, putting a stop to all but essential spending and becoming the latest in a string of councils to plunge into financial distress.
Birmingham in central England joins the London commuter authorities of Woking, Thurrock and Croydon in its declaration. It raises questions about the stability of budgets that have been squeezed by cuts from the central government along with risky investments in commercial properties, the pandemic and inflation.
Birmingham City Council said it has a shortfall of £87 million ($109 million) in the current financial year and also faces a “potential liability relating to equal pay claims in the region of £650 million to £760 million.”
It has been forced to pay out after a Supreme Court ruling in 2012 sided with a group of largely female employees who had missed out on bonuses that were given to staff in traditionally male-dominated roles at the council. It has already paid out more than £1 billion on the equal-pay claim and was also hit with costs from a new IT system.
Prime Minister Rishi Sunak ruled out a rescue for the struggling council back in July despite growing concerns over the costs facing local leaders.
The council also blamed “unprecedented financial challenges,” including inflation, rising demand for adult social care and “dramatic reductions” in income from business taxes.
A section 114 notice is issued by a council when it believes its income will not be able to meet spending. It is widely reported as effective bankruptcy for a council, meaning it cannot make new spending commitments. It often leads to a new budget with reduced expenditure.
“The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,” a statement from a Birmingham City Council spokesperson said.
“The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.”
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 statement added.
“It will be concerning for the people of Birmingham,” Prime Minister Rishi Sunak’s spokesman Max Blain told reporters on Tuesday.
The government had already provided extra funding for the council, at around 10% of its budget, but “it’s for locally elected councils to manage their own budgets,” Blain said.
The government was “engaging” with the council about “how they are able to focus on core services,” Blain added. Ministers also requested that it ordered an “independent governance review.”
(Updates with details on the decision and comment from Sunak’s office)
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