Birmingham City Council effectively files for bankruptcy and stops all but essential spending

Birmingham City Council has effectively filed for bankruptcy.

The council, which has been hit with a £1bn equal pay bill, had already announced a freeze on non-essential spending.

Europe’s largest local authority confirmed it had issued the declaration that it cannot balance its books.

It has issued a Section 114 notice - an admission that it cannot manage its catastrophic financial crisis without help.

A Section 114 notice is the equivalent of a white flag surrender that officers cannot see a way out of the mess without support and intervention, usually a plea to the government for help.

In a statement, the council said: "Today’s issuing of a Section 114 Notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents."

It adds: "Despite the challenges that we face, we will prioritise core services that our residents rely on, in line with our values of supporting the most vulnerable."

Finance director Fiona Greenway revealed this morning that external auditors have ruled its accounts for 2020-22 do not fully account for equal pay liability and are therefore not closed.

The council had appointed new advisers and commissioned reviews earlier in July this year, to look into the root causes of its financial issues.

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 £87m.

"In June, the council announced it had a potential liability relating to equal pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m 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 £650m to £760m), 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.”

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.”

A DLUHC spokesperson said: “We have been engaging regularly with Birmingham City Council in recent months over the pressures it faces, including around its equal pay liability, and have expressed serious concern over its governance arrangements.  

“We have requested written assurances from the leader of the council that any decision regarding the council's issues over equal pay represents the best value for taxpayers' money."

Tories react to the S114 notice - condemning the Labour leadership for a catalogue of concerns

In a statement, they said: "Today (Tuesday 5th Sept) the Labour Administration at Birmingham City Council have published a section 114 notice stating the Council's general fund is in a negative position due to the costs of Equal Pay, and that the Council has insufficient resources to meet expenditure and the is not currently able to agree a solution that will allow suitable funding or financing to be obtained for this liability.

Reacting to the news, Leader of the Opposition Cllr Robert Alden 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."

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".

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