UK’s Labour Run Birmingham City Declares Bankruptcy

Birmingham, the country’s second-largest city, declared bankruptcy on Tuesday, sending shockwaves through the city’s governance. According to the Guardian, the Labour-run administration representing the UK’s second-largest city issued a 114 notice, halting all but essential spending and becoming the latest in a succession of councils to go bankrupt.

A council issues a Section 114 notice when it fears its income will not be sufficient to cover its expenses. In recent years, Thurrock, Croydon, Slough, and Northamptonshire have all issued Section 114 notifications.

The equal pay claim was a major reason for the city’s bankruptcy. The City Council lacks the funds to pay 760 million pounds ($955 million) in equal pay claims owed to female government employees who were formerly paid less than men.

The council reported in June that it had paid out 1.1 billion pounds to female workers but still had a current liability of 650-750 million pounds, which was accruing at a rate of 5 million pounds to 14 million pounds each month.

The city now anticipates an 87 million pound deficit for the fiscal year 2023-24.

”The Council lacks the resources to fund the equal pay expenditure and currently has no other way of satisfying this commitment.

The notice implies that “all new spending, with the exception of protecting vulnerable people and statutory services, must cease immediately,” according to a statement from Birmingham City Council.

The present bankruptcy has been in the works for several years. According to the BBC, these claims stretch back to 2012, when a group of 170 women, including teaching assistants, cleaners, and catering employees, obtained the right to pursue equal pay claims against the council in the Supreme Court. They argued that the council did not give them with the same benefits and remuneration as males doing comparable employment.

According to the Independent, the council has also blamed its financial difficulties on the costs of a new cloud-based IT system by Oracle and years of funding cuts by successive Tory governments.

The IT system was scheduled to cost 19 million pounds, but after three years of delays and issues following installation, it is now anticipated to cost 100 million pounds.

Furthermore, the crisis is being blamed on inflation, increased demand for adult social care, and ”severe decreases” in income from company taxes.

Deputy Council Leader Sharon Thompson told CNN, ”Local government is confronting a perfect storm.

This council, like councils around the country, is facing unprecedented financial pressures, ranging from massive increases in adult social care need and severe decreases in business rates income to the impact of rampant inflation.”

The government had already allocated additional cash for the council, amounting to approximately 10% of its total budget, but ”it is for locally elected councils to handle their own budgets,” Prime Minister Rishi Sunak’s spokesperson Max Blain told reporters on September 5.

The cosmopolitan city, the largest in central England, held the Commonwealth Games last year and will host the European Athletics Championships in 2026.

However, a former Birmingham City Council adviser told the BBC that hosting the Commonwealth Games was one of the reasons for the city’s bankruptcy.

Birmingham’s Section 114 bankruptcy notifications explained

A city council issues a Section 114 notice when it fears its income will not be sufficient to cover its expenditures. In recent years, Thurrock, Croydon, Slough, Woking, and Northamptonshire have all given Section 114 notifications.

A Section 114 notice is a notice issued in the context of local government finances in the United Kingdom under Section 114 of the Local Government Finance Act 1988. The Chief Finance Officer (CFO) of a local authority issues this notification when the authority is in danger of failing to set a balanced budget. This is what it entails:

Background: In the United Kingdom, local governments are obligated by law to create a balanced budget for each fiscal year. This implies they must ensure that their predicted income equals or exceeds their intended spending.

Part 114 of the Local Government Finance Act 1988: This part of the law requires the CFO to issue a Section 114 notice if, in their professional judgement, the authority will be unable to prepare a balanced budget. This usually occurs when there is a large gap between predicted income and intended expenditure.

Implications: The issuance of a Section 114 notice has major consequences for the local government. It essentially signifies that the government is in a financial crisis and must move quickly to address the deficit. The notice restricts the authority’s spending, and no additional expenditures can be committed without the explicit consent of the CFO.

Obligation: The notice emphasises the local authority’s leadership’s obligation, including council members and senior officers, to take corrective actions to bring the budget back into balance. This could include reducing services, introducing efficiency measures, or looking for new revenue streams.

Reporting: The authority must notify the Ministry of Housing, Communities, and Local Government of the Section 114 notice, which may give extra assistance or involvement depending on the severity of the financial problem.

Timeline: The Section 114 notice is in effect until the CFO is satisfied that the authority has the ability to adopt a balanced budget. Once the CFO is sure that the appropriate efforts have been made to remedy the financial issues, the notice can be lifted.

It is vital to remember that the issuance of a Section 114 notice is a significant event that demonstrates the local authority’s substantial financial difficulties. It’s a system for assuring appropriate financial management and preventing local governments from incurring unsustainable debts.

To protect key services, the notice means that everything but essential spending will be halted.