Birmingham city council which serves more than 1 million people has declared itself “effectively bankrupt” amid “unprecedented financial challenges”.
The council announced on Tuesday that it has now issued a section 114 notice after failing to meet its financial liabilities.
The Labour-run council may have to cut back on all non-essential services and may even have to raise taxes to balance the books. Services that could face budget cuts include street cleaning, parks and maintenance, libraries, and even the frequency of bin collections.
The crisis has been a decade in the making with the local government body struggling to settle equal pay claims amounting to £760 million. These claims were initiated after a landmark Supreme Court Judgement in 2012.
The court ruled in favor of female employees who said they were not paid the same bonuses that were awarded to men on the same pay grade.
Earlier this year, the council revealed it had already paid over a billion pounds in equal pay claims over the last 10 years. The council also announced potential liabilities of up to £760 million which were rising at a rate of £5m to £14m per month.
Even though the city is struggling, it must still find a way to fund the remaining claims.
“The legal bill is one of the biggest challenges this council has ever faced. It means there will be significantly fewer resources available in the future compared to previous years and we will need to reprioritize where we spend taxpayers’ money,” the council said in June.
The Council has also blamed successive budget cuts of over £1 billion over the last decade for this debacle.
A new cloud-based IT system has further compounded the city’s financial issues. It was supposed to cost £19m but costs have escalated up to £100m due to three years of delays and installation problems.
Officials have also pointed to other financial strains ranging from huge increases in adult social care demand and dramatic reductions in business rates income. Add to that the impact of rampant inflation, and it becomes a difficult financial situation.
As a result of this “perfect storm“, Birmingham is facing a budget shortfall of £87m for 2023-24 which is expected to increase to £165m in 2024-25.
It should be noted that Birmingham isn’t the only local council facing this predicament. Councils across England and Wales are struggling to meet the growing demand for basic services.
With the situation deteriorating across the country, Prime Minister Rishi Sunak’s office has issued some reassuring statements.
“The government for its part has stepped in to provide support, an additional £5.1bn to councils in 23-24, which is more than a 9% increase for Birmingham city council”, the official spokesperson of the prime minister said.
The prime minister’s office has also stressed the responsibility of elected councils to manage their funds responsibly.
“Clearly it’s for locally elected councils to manage their own budgets. The government 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.”
Birmingham is one of England’s major cities and a popular sporting venue. The city hosted the Commonwealth Games in 2022 and is scheduled to hold the 2026 European Athletics Championships. However, the economic strain has put a question mark over the city’s ability to hold the event.