Birmingham city council effectively declares bankruptcy to meet equal pay claims

The largest local authority in Europe - Birmingham City Council - has declared itself effectively bankrupt today (Tuesday, September 5) after being hit by a multi-million pound pay claim.

The council issued a Section 114 notice and said it will stop all new spending except for statutory duties like the core services. It is also expected to come up with a new budget to reduce spending. Local authorities in the UK can’t go bankrupt but the notice means they are unable to spend money, which is why the notice is often reffered to being ‘effectively bankrupt’.

Birmingham City Council made an alarming admission earlier this summer that it can’t afford to pay its equal pay liability - which is currently in the region of £650m and £760m and continuing to accrue at an estimated rate of between £5 million and £14 million a month.

The council had also asked employees if they would leave as part of a Mutually Agreed Resignation Scheme (MARS) that was launched on August 21. In an attempt to cut costs, more than 10,000 employees were invited to resign.

In a statement, the Labour run council said the notice was a “necessary step as we seek to get our city back on a sound financial footing”.

What Birmingham City Council said

In a statement issued to BirminghamWorld, a spokeswoman 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 that 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.

“On that basis the Council’s Interim Director of Finance, Fiona Greenway, (s.151 – Chief Finance Officer) has issued a report under section 114(3) of the Local Government Act, which confirms that the Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability.

“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.”

What the opposition has said in Birmingham

Responsing 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.”

Mr Alden added: “Even over the Summer the Council have still failed to show the proper speed and urgency needed to tackle equal pay. From discussing the risk with Unions privately over the last 3 years, to having confessed publicly to the risk in June, they passed a decision from cabinet in July to another committee then twice postponed a decision at those meetings in August, only finally putting forward a solution in September. Another 4 months lost, all the time the bill increasing by up to £14m a month.”