A £760m equal pay liability bill at Birmingham city council, which led it to effectively declare bankruptcy and make a swathe of drastic budget cuts, could be hugely overstated, councillors, researchers and whistleblowers have said.
Sources inside the Labour-led council said the local authority’s finances were in disarray as a result of a faulty IT system rollout and with no accurate accounts for the past two years there was no way of knowing exactly how the council’s budget stacked up.
There is growing unease that large budget cuts, asset sales and a 10% council tax increase have been made too hastily, before the council has fully got to grips with the current state of its finances.
“The figure of £760m is a figment of someone’s imagination, in my opinion,” said Paul Tilsley, a Liberal Democrat councillor. “If you look at the estimated claimants, the numbers are just incompatible, it defies financial imagination.
“And this figure is ruining this city. We’re going to see the real basic infrastructure of the city, things like libraries, closed and sold off, and when they’re gone they can’t be replicated. I’m seeing the heart ripped out of my city.”
Birmingham city council, the largest local authority in the country, representing over 1 million people, issued a section 114 notice effectively declaring bankruptcy in September, citing an equal pay liability of about £760m and a £100m bill to fix a failed IT system upgrade.
This led councillors to pass the biggest local authority budget cuts in history last month, as well as a 21% council tax rise over two years. Now questions are being asked about the basis on which these cuts were made.
Max Caller, the chief commissioner drafted in by the government to get the council back on track, told one meeting that the current equal pay figure would eventually be replaced by a “real number” and “that’s the only time it is worth worrying about”.
Fred Grindrod, a Labour councillor and chair of the council’s audit committee, said “serious questions” remained about the figure and the assertion that it may not be real was a “mind-boggling situation to be in”.
External auditors are in the process of verifying the equal pay figure, but have yet to report back on their findings. Union sources, who are fighting for equal pay for female council employees, also said they had no idea where the £760m liability figure had come from or how it had been calculated. It could be underestimated or overestimated, they said.
James Brackley, a lecturer in accounting at the University of Sheffield, has spent months studying council documents and audit reports to piece together the trail that led to Birmingham’s financial meltdown.
His work, through the university’s Audit Reform Lab, found that the failed Oracle IT system was by far the council’s biggest financial problem, and its budget deficits “have little to do with the equal pay issue”.
“Certainly, there’s no logical reason to trigger a section 114 bankruptcy over a number that’s so speculative, and relates to liability so far in the future. It’s a very odd thing to do,” said Brackley. “[The £760m figure] has still not been audited, and we still don’t have any disclosure as to how it’s been calculated.”
Reports from external auditors leading up to March 2023, three months before the £760m liability was announced, raised no serious concerns about the council’s management of the situation.
Brackley said his research suggested service cuts and asset sales were being made too quickly, and with little guarantee they would provide good value for money in the long run.
He added: “It has created chaos because they’re just cutting stuff and they haven’t done the value for money assessments so they don’t know where that leaves them.”
Staff have also raised alarm at the extent of the council’s IT meltdown following the installation of a new Oracle system – the council’s first major IT upgrade since 1999 – that led the council to lose control of its financial reporting system.
Councillors said issues arose after staff tried to amend and customise the Oracle system to fit the council’s older processes, rather than installing the system as it comes.
Tilsley said: “It is so bad that if I was to ask our director of finance: ‘How much money have we got in the bank today?’ nobody would be able to tell me. We’ve lost complete control over the financial management.”
He added that while the council had been “badly served by a number of senior officers”, he was not “letting the Labour administration off the hook” for losing control of the situation.
One whistleblower in the council’s IT department said that when the new system was first launched in 2022, “nothing was working apart from payroll” and the council was unable to track its income and expenditure.
For about seven months, the council was also unable to collect council tax and business rates debt as the system could not show who had and hadn’t paid, they said.
“There was no financial reporting. How did we know what was in the budgets, what cash had been collected, what cash had been spent? We couldn’t,” the whistleblower said.
“Imagine you’ve received income for 30,000 things, and you’re trying to work out who the hell gave it to you and who you spent it with. That’s what we’re talking about.”
They said that although the system had improved, there was still unidentified revenue and issues with the book-keeping process.
“You need to know all that information to set a budget. So do I believe that this budget they’ve set is correct? Well, they don’t even know the equal pay liability. So I’m not sure,” they said.
“Oracle has cost £110m and its still not functioning. I think we’re still at least two years away from getting this completely sorted. To be honest, I believe the equal pay stuff is really covering up this Oracle mess.”
Grindrod said the issues with the IT system “beggar belief”.
“This is not a stable place for any organisation to be in, and is absolutely not a position that a council that provides essential services to 1.2 million residents, underpins communities over 102 square miles, and is the underlying network of the second biggest city in the country, should be in,” he said.
Internal inquiries are ongoing to establish what went wrong at the council, and the leader, John Cotton, has called for a public inquiry.
A spokesperson for Birmingham city council said: “In early 2023, there were a variety of estimates of equal pay liability, which were wide-ranging and clearly needed further work. Further detailed analysis was requested and subsequently the findings were shared with the public and all members of this council.
“Since then the council has worked tirelessly with trade unions and the commissioners to agree a job evaluation scheme that will help to end the equal pay liability once and for all.
“A budget for the next two years was approved by full council in March. We must now focus on how we spend what we have in the most effective way, and we are committed to getting the basics right across a whole range of service areas.”
A spokesperson for the department for levelling up, housing and communities said: “Birmingham city council faces this financial situation following its failure to get a grip of the significant issues it faces and years of severe mismanagement. This is why commissioners were appointed in October 2023 to protect residents and taxpayers in the city.
“Commissioners have the Secretary of State’s full support in taking whatever steps are necessary to drive forward the required improvements”.
