Birmingham, the UK’s second-largest city, has effectively declared itself bankrupt. This decision comes as the city grapples with equal pay claims, leading to a severe financial crisis.
Birmingham City Council, responsible for serving more than one million people, initiated this drastic action by filing a Section 114 notice under the Local Government Finance Act 1988. This notice effectively halts all non-essential spending while prioritizing essential services.
The massive deficit has been attributed to difficulties in settling equal pay claims totaling between £650 million and £760 million and is expected to result in a projected deficit of £87 million for the 2023-24 financial year.
“Local government is facing a perfect storm,” Sharon Thompson, the deputy leader of the council said, highlighting the city’s long-standing financial issues including the equal pay liabilities.
“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.”
She also pointed fingers at the UK’s ruling Conservative Party, asserting that Birmingham had suffered a loss of £1 billion in funding due to successive Conservative governments.
Despite these challenges, Thompson emphasized that the city remains open for business and welcomes residents and visitors.
The response from the UK government has been cautious, with a spokesperson for Prime Minister Rishi Sunak stating that local councils are responsible for managing their budgets. The government has expressed concerns about governance arrangements and the responsible use of taxpayers’ money.
Conservative councilors in the city have blamed Labour mismanagement of public finances for the crisis.
But Birmingham’s financial turmoil is not an isolated incident. Croydon Council in south London issued a Section 114 notice in November due to a £130 million deficit in its budget. Thurrock Council in Essex, and Woking Borough Council declared themselves in financial distress in December and in June.
The Institute for Government thinktank has highlighted a significant decline in local authorities’ spending power, and found that central government funding had been slashed by up to 40% in the first decade of Conservative rule.
Jonathan Carr-West, the chief executive of the Local Government Information Unit (LGIU), commented on Birmingham’s situation, calling it a “sobering moment” and urging central government to address the financial challenges faced by local councils. He warned that Birmingham might not be the last council to encounter such difficulties unless substantial changes are made.
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