In a statement released, Birmingham City Council said the declaration of bankruptcy was a necessary step to get the city back on a healthy financial footing, OverseasNews.com reported. Birmingham’s financial crisis has been a long-standing issue and there are no longer the resources to fund it.
Birmingham City Council’s bankruptcy is linked to the £760 million bill to settle equal pay claims. In June this year, the council revealed that it had paid out £1.1bn in equal pay claims over the last 10 years, and currently has liabilities of between £650m and £750m.
The statement added: “Like local authorities across the UK, Birmingham City is facing an unprecedented financial challenge, from the dramatic increase in demand for adult social care and the sharp reduction in business rates income, to the impact of soaring inflation, local authorities are facing a storm.”
In July this year, Birmingham City Council announced a moratorium on all non-essential spending in response to equal pay claims, but eventually issued a Section 114 Notice.
As well as the pressure of the claims, Birmingham City Council’s first and second-in-command, John Cotton and Sharon Thompson, said in a statement that a locally procured IT system was also having a serious financial impact. The system, originally designed to streamline payments and HR systems, was expected to cost £19m, but after three years of delays, figures revealed in May this year suggest it could cost as much as £100m.
What will be the subsequent impact?
After Birmingham City Council announced a moratorium on non-essential spending in July, UK Prime Minister Rishi Sunak had said, “It is not the role of (central) government to bail out financially mismanaged local councils.”
Under the UK’s Local Government Finance Act, the issue of a Section 114 Notice means that local authorities cannot make new spending commitments and must meet within 21 days to discuss their next steps. However, in this situation, existing commitments and contracts will continue to be honoured and funding for statutory services, including protection of vulnerable groups, will continue.
Typically, most local authorities in this situation end up passing a revised budget that reduces spending on public services.
In this case, Professor Tony Travers, a local government expert at the London School of Economics and Political Science, explains that Birmingham has been facing financial difficulties “on and off” for more than a decade due to a range of challenges, including equal pay. The risk is that there will be further cuts to council services, which will not only affect how the city looks and feels to live in, but will also have a knock-on effect on the city’s reputation.
Professor Travers further said that people around the city don’t need to worry that their bins won’t be emptied or that social benefits will continue. But it also means that no new spending can be committed, so there won’t be anything extra from now on. Meanwhile next year’s budget is going to be very difficult, and the problem isn’t going away.
Post time: Sep-08-2023