Britain’s second-largest city Birmingham has declared itself bankrupt as it faces an annual budgetary shortfall of millions of pounds. The city council's head of finance issued a Section 114 notice to meet its financial liabilities in the Council House on Tuesday, a statement said.

A Section 114 notice means that a council is unable to meet its financial liabilities and it can no longer commit to new spending without external help. After the notice is issued, the local authorities shift focus on maintaining only vital services such as schooling, housing, social care, waste collection, and road maintenance and halting those services they deem as “unessential”.

In the notice, the city council said it was currently in a negative general fund position because of the cost of providing for equal pay claims. The claims, it said, would result in exceeding the financial resources available to the council. "This means that spending due within that period exceeded the financial resources available to the council in that same period." The council had already announced a freeze on nonessential spending in July and launched a mutually agreed resignation scheme for all its employees in an attempt to cut costs.

The council said that it would have to effectively declare bankruptcy because it had no more money to cover compensation awarded to former female staffers, which have been draining its coffers for years.

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Woking, Croydon, and Thurrock are among the other councils that have made similar announcements recently after botched investment projects and deep funding cuts but the contagion spreading to Europe’s largest local authority, which hosted last summer’s Commonwealth Games, is likely to intensify pressure on Rishi Sunak’s government over the legacy of 13 years of austerity.

The council leaders have blamed a £760 million bill for equal pay claims, problems installing a new IT system, and £1 billion in government cuts for its financial problems, as reported by a British daily.

In 2010, nearly 5,000 former council employees, most of whom were women, had won a case for equal pay, as reported by the BBC. The group did not receive bonuses given to roles that are traditionally associated with men such as street cleaners, according to the British Broadcaster. In June, the council revealed it had paid out £1.1bn to female workers but still had a current liability of £650-£750m, accruing at a rate of £5m to £14m a month. Birmingham’s equal pay claim is part of a long-running battle with trade unions.

Thousands of women employed by the Birmingham council were granted compensation in 2014, after the original case. The council subsequently sold a number of key assets, including the National Exhibition Centre (NEC), in a decision seen at the time as partly aimed at funding the cost of the judgment. Women in female-dominated roles such as cleaners and caterers had complained that they were missing out on bonuses given to staff in male-dominated roles, such as refuse collectors.

Birmingham

Even though bankrupt, the city has to provide statuary services, which include education, adult social care, housing services, and child social care. There would be other cuts in “unessential” services but it is not clear what exactly they would be.

The city leadership run by the Opposition, the Labour Party, has pointed to reductions in business rates income and the impact of inflation on its budget. The leader and deputy leader of the council, John Cotton and Sharon Thompson, informed that the authority, “does not have the resources” to fund its equal pay liability, pointing to an £87m hole in this year’s budget and said that there has also been a huge increase in adult social care demand. In a council meeting on Tuesday morning, Robert Alden, the leader of the Conservative opposition, accused the council of “lying to the people of Birmingham”.

Adult social care in the United Kingdom includes personal care such as support for washing, dressing, and getting out of bed in the morning, as well as wider support to help people stay active and engaged in their communities. All adults over 18 are entitled to an evaluation to determine whether they could qualify for help or support.

UK Govt lends a helping hand to Birmingham

The UK government has said that the council being under financial stress is concerning for residents, as per a report. “The government for its part has stepped in to provide support, an additional £5.1 billion to councils in 2023-’24, which is more than a 9% increase for Birmingham city council,” said the prime minister’s official spokesperson. “Clearly it’s for locally elected councils to manage their own budgets," he added. Acknowledging that Birmingham had a “particular issue around equal pay settlements”, the spokesperson said that the government has requested assurances from the leader of the council about the best use of taxpayers’ money.

Birmingham is not the first city to go bankrupt but it has become the seventh council since 2020 to have issued a section 114 notice. Thurrock Council in Essex had recently declared bankruptcy in December after it got into difficulties over borrowing large sums to invest in solar energy.

A report published last week by the Special Interest Group of Municipal Authorities, a collective of 47 urban councils, had shown that at least 26 councils in the country were at risk of effective bankruptcy within the next two years. With Birmingham indicating that it cannot balance its books, experts warn of others living ‘hand to mouth’.

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