Four more key reasons Birmingham City Council declared itself ‘effectively bankrupt’

Birmingham City Council issued a Section 114 notice declaring itself ‘effectively bankrupt’ due to equal pay and IT issues - here are four more key reasons for the financial crisis
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Birmingham City Council faces an enormous budget gap of at least £300 million – and more of the key reasons why have emerged in a new report.

The Labour-run council effectively declared bankruptcy last September as it struggled with major issues which have been put in the spotlight repeatedly in the past.

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They include an equal pay fiasco, the failed implementation of a new IT and finance system and years of austerity cuts. The dire state of the council’s finances were laid bare in a report presented to the city council’s Cabinet last week, which offered further insight into the causes of the budget gap and why the authority now has to plan a devastating wave of cuts to services.

The report by finance chief Fiona Greenway, the council’s Section 151 officer with legal responsibility for signing off the budget, said there were a number of “significant issues” which have resulted in a budget gap of over £300m among the 2024/25 financial year.

1) Lost income from parking and asset sales

Amid the budget pressures previously mentioned, such as the costs for the equal pay and Oracle IT programmes, the report also highlighted expected lost income from parking and potential asset sales as an important factor.

The council had previously been ordered to act urgently to get rid of ‘surplus’ properties and freehold sites as part of a financial recovery plan. Marie Rosenthal, interim city solicitor, previously told a meeting of the council’s new property sub committee: “This is a huge programme of asset sales for the council. We are hoping to dispose of more than 500 properties over 12 months. This is a huge task.”

Birmingham City Council HouseBirmingham City Council House
Birmingham City Council House

2) Issues with key services

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Another budget pressure is the growing demand for key services, which is something council leader John Cotton has drawn attention to in the past.

The report goes into further detail, saying there had been increased demand for temporary accommodation and “increased complexity” when it came to delivering adult and children’s social care. It also said there were additional staffing costs across social care and to support the Oracle finance system.

During a Cabinet meeting last week, Cllr John Cotton said councils across the country were “facing a huge increase in demand for services". He continued: "While we work hard to address the specific issues facing this council, I absolutely join leaders of all stripes across the country in making that case for a fairer deal for local government.”

Conservative opposition leader Cllr Robert Alden responded by saying his group had long supported calls for more funding for local government but argued that the council’s leadership needed to stop blaming others for “mistakes made in Birmingham.”

3) Business rates

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According to the report, there has been an “underachievement” against the forecast council tax and business rates income for the previous two financial years.

It went on to say there had been a significant reduction in forecast business rates mainly as a result of reduced collection rates, partly caused by the difficulties with the Oracle IT system. The council also had to deal with higher than expected appeals against business rates.

4) Inflation

Another factor contributing to the catastrophic financial situation is inflation, with the council saying it needs to consider future pay settlements as well as assumptions for growth in “care packages, transport and general price inflation.”

The final budget gap figures and proposed solutions will be presented to government-appointed commissioners by the end of this month and then to the Cabinet and full council meeting in February.

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