Birmingham City Council approve bankruptcy recovery plan - but what’s next?

The leader of Birmingham City Council apologised to the city on Monday evening (September 25) as the council approved an effective bankruptcy notice and financial recovery plan which includes spending controls.

A section 114 notice which restricts all new spending was issued on September 5 with the council unable to find the money for equal pay claims which estimates suggest have swelled to over £1 billion.

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. It has also been revealed that the council needs to stump up £100m to fix its flawed IT system, Oracle, which was intended to help streamline payments across its public services.

All non-essential spending had already been frozen when news of the huge bill became public in June. At the extraordinary four hour council meeting councillors made speeches and discussed the reason why these financial issues are now facing the council.

Michael Gove has announced he will appoint commissioners to take over Birmingham City Council and has launched a local inquiry to look into the reasons why the council has ‘effectively gone bankrupt’.

During the meeting, Conservative councillors largely blamed the Labour-run authority for its decisions which have led to the financial crisis, while Labour councillors pointed to years of austerity and cuts to services for the section 114 notice.

Around 100 protesters from Birmingham Trades Union Council had gathered ahead of the meeting to demonstrate against council cuts and job losses, which are expected as a result of the Section 114 notice. ‘Our city, not for sale!’ were the words bellowed out in front of Birmingham’s council house at the rally.

Council approves four recommendations

At the end of the four-hour meeting inside Birmingham City Council House, council members voted to approve four recommendations.

These included accepting the Section 114 notice, agreeing on spending control measures until it has passed a new budget, agreeing that the council’s spending exceed its revenue and to receive a report and emergency budget next month (October).

What was said during the meeting?

Addressing the meeting, council leader John Cotton apologised to the people of Birmingham. He said: “I apolgise for the people of Birmingham that we are faced with huge challenges. We must now work together to bring about positive changes for our residents, stake holders and the communities that we serve.”

Tory leader Councillor Robert Alden stated that the council knew about the equal pay claims for some time. He references a report from 2019 which mentioned ‘significant financial risk’ but that the council kept their eyes closed.

Many councillors also expressed the importance of the council not selling off their cultural assets during the meeting.

It comes after national press claimed Birmingham’s historic Council House could be turned into a hotel to help pay for spiralling debts. Europe’s largest local unitary authority is all but bankrupt after failing to settle equal pay claims amounting to £760m.

‘Birmingham will rise like a phoenix’

It’s expected that at least some council assets will be sold to the highest bidder as a way to escape its financial black hole. Mr Alden said it would be ‘totally unacceptable’.

Mr Alden added: “This is a council issue but, now I must stress this, the city of Birmingham has a bright future and the city will rise like a phoenix just as New York did following the bank crisis.”

Meanwhile, Lib Dem leader Cllr Roger Harmer said the impact of cuts to services due to the financial crisis within the council will be ‘devastating’. Conservative Cllr Deidre Alden also called for the Labour-lead authority to resign.

A number of councillors, including Labour Cllr Sam Forsyth, Labour wanted to reassure residents that essential services will continue to be provided by the council despite the financial challenges it faces.

He said: “We’ve all had anxious phone calls over the last weeks, saying will my bins be collected? Will my kids still be able to go into the local school? The answer to that is yes - all these essential services will be provided.” Conservative Cllr Richard Parkin said Labour had ‘broken Birmingham’ and that will be ‘their legacy’.

What happens next as Birmingham City Council approves ‘bankruptcy’ notice?

Birmingham City Council will receive a further report and an emergency budget next month (October).

The council is expected to make further decisions with a revised emergency budget set to be presented at another extraordinary meeting at the end of October, 2023. It’s expected that at least some council assets will be sold as a way to ease the financial burden, but there is no confirmation on which assets will be sold.

The council owns around £2.4 billion in property, including the historic council house in Victoria Square and around 26,000 acres of land and 6,500 property assets (not including housing, infrastructure and schools) such as the Library of Birmingham, the Museum and Art Gallery, Aston Hall and Sarehole Mill. The council also owns an 18.7% stake in Birminghm Airport.

The council previously sold several assets, including the National Exhibition Centre for £307 million in 2015. In 2018, Blackstone acquired NEC Group from, paying around £800 million for the group.

Michael Gove has confirmed that the Government is prepared to extend additional financial support to the city. His appointed commissioners will now help to run the council. Max Caller CBE, an experienced local government professional and former commissioner, has been named as the preferred candidate to lead the intervention.

The commissioners will provide advice and challenge to the council across its operations and will have powers to make decisions directly should they deem that necessary.