Birmingham “deserves so much better”, West Midlands Mayor Andy Street has said, after the city council declared it was effectively bankrupt due to a £760 million bill for equal pay claims.
Europe’s largest local authority announced on Tuesday morning that all new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately as it issued a section 114 notice.
Andy Street, the Conservative mayor of the West Midlands, said the news was “deeply disturbing” and raises “serious questions” about the way the Labour-led council was being run and the decisions that had been taken over the past decade.
He said: “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.
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— Andy Street
“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.
“Instead, we are simply presented this morning with what is effectively a bankruptcy notice and an admission of defeat.
“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.”
In June, the council announced it had a potential liability relating to equal pay claims in the region of £650 million to £760 million, with an ongoing liability accruing at a rate of £5 million to £14 million per month.
A council spokesman said they are also faced with an in-year financial gap in its budget which currently stands in the region of £87 million.
Sharon Thompson, deputy leader of Birmingham City Council, told councillors at a cabinet meeting on Tuesday morning that councils up and down the country are facing similar issues due to extra pressure from inflation and adult social care.
Local government is facing a perfect storm. Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes, to the impact of rampant inflation— Sharon Thompson, deputy leader of Birmingham City Council
She said: “I want to stress that despite the significant challenges that we face, we will prioritise core services that our residents rely on in line with our values of supporting the most vulnerable in this city.
“Birmingham City Council faces longstanding issues, including the council’s historic equal pay liability concerns and the implementation of the Oracle ERP (IT) system, which have been compounded by the reality that Birmingham had £1 billion of funding taken away by successive Conservative governments.
“Local government is facing a perfect storm. Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes, to the impact of rampant inflation.”
But Mr Street said other councils have managed to keep providing services in the face of cuts with authorities declaring bankruptcy “severely rare”.
He said: “It is no secret that local authorities up and down the country have faced significant cuts over the past decade (even if the funding from government has been improving in recent years), and it has been a real challenge to keep services running to the standard that people expect.
“However, the huge majority of councils of all political colours are managing to achieve this, with bankruptcy extremely rare.”
Mr Street said it was not for him to conduct an inquisition, “however severely there needs to be one”.
Addressing residents, he added: “My job is to continue to put this city’s residents first, irrespective of politics.
“I am no clearer than any of you about what this will mean for council tax bills or key services – but I can make a promise.
“That promise is that I will leave no stone unturned in ensuring citizens are protected as best as humanly possible from the fallout.
“I will work tirelessly with ministers, government officials and, of course, the city council themselves to try and resolve this situation in a way that shields residents, their pockets, their services and their futures.
“Finally, just because the city council is in this position does not suddenly mean that Birmingham is failing – indeed, far from it.
“We have made huge strides as a city and region in recent years, encapsulated by the Commonwealth Games last year.
“I would urge anyone looking to back Birmingham to reflect on our progress, and consider our world-class institutions, our innovative businesses and the record amounts of investment being made.
“Birmingham remains firmly open for business. However bad today’s announcement, I will play my part to ensure the city gets through this.”
Leader of the Conservative opposition Robert Alden said it was “cloud cuckoo land” to say Birmingham’s problems are being replicated across the country and the situation was “embarrassing for this great city”.
In a statement he 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.”
He added: “Birmingham Labour have no grip of their mess and no ability to fix it, hence why the final say on spending control has now been removed from the Labour political leadership.”
Birmingham Liberal Democrats said in a statement on their website that the situation was a “failure of Titanic proportions”.
Liberal Democrat group leader Roger Harmer said: “It smacks of sheer arrogance, that the council can sit and blame others for their inability to manage the council effectively. Not one of them has apologised to the people of Birmingham for this failure, not one.
“This decision is going to be felt most sharply by the most vulnerable in our city. The serious failures with adult social care, the equal pay crisis and the Oracle fiasco is what has pushed us over the edge.”
He added: “Every one of Birmingham’s citizens will feel the pain of this decision as we move into uncharted waters. Services will be cut to essential only, meaning that many services that people rely on, services that are essential to those people, are going to be cut.”
Downing Street earlier acknowledged that Birmingham City Council having declared itself in financial distress will be “concerning” for residents.
The Prime Minister’s official spokesman said: “Clearly, local government is vital to our communities and we know they have been facing pressures.
“The Government for its part has stepped in to provide support, an additional £5.1 billion to councils in 23/24, which is more than a 9% increase for Birmingham City Council.
“Clearly it’s for locally elected councils to manage their own budgets. I know the department has been engaging regularly with them to that end and has expressed concern about their governance arrangements and has requested assurances from the leader of the council about the best use of taxpayers’ money.”
He acknowledged Birmingham has a “particular issue around equal pay settlements” and said ministers have “commissioned an independent governance review which will report in the coming weeks”.
“It will be concerning for the people of Birmingham and it is important that the council provide reassurance and deliver on what has been requested by the department,” the spokesman added.
In a series of tweets, minister for local government Lee Rowley said: “We have been aware of significant problems at Birmingham City Council for some time, caused by a failure to deal with historic pay issues & a bungled IT implementation.
“It is hugely disappointing, but not unexpected, that Birmingham has issued a Section 114 notice today.
“In April, recognising that potential problems were developing, we requested, and Birmingham agreed, to undertake an external review. We await the outcome of that report and we will consider it carefully.
“In addition, last week, I also wrote to Birmingham reminding them of their best value duty to ensure taxpayers’ money is spent wisely.
“Any decisions being made now to resolve the issues they have created must be transparent and clear.
“The council will continue to deliver services to the residents of Birmingham whilst we consider the issues that they have and how fiscal responsibility can be restored to the City Council. Taxpayers deserve better.”
Birmingham is one of a number of councils to issue section 114 notices in recent years.
The first 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”.
