Birmingham, the second-biggest city in Britain, declared itself bankrupt on Tuesday, sending shockwaves through the city’s governance. The Labour-run administration representing the UK’s second-largest city issued a 114 notice, putting a stop to all but essential spending and becoming the latest in a string of councils to plunge into financial distress, as per the Guardian.
A Section 114 notice is issued by a council when it believes its income will not be able to meet spending. Thurrock, Croydon, Slough, and Northamptonshire have all issued Section 114 notices in recent years.
One of the key reasons behind the city going bankrupt is the equal pay claim. The City Council doesn’t have enough money to pay 760 million pounds ($955 million) in equal pay claims it owes to female government employees who were paid less than men in the past. In June, the council revealed it had paid out 1.1 billion pounds to female workers but still had a current liability of 650-750 million pounds, accruing at a rate of 5 million pounds to 14 million pounds a month.
The city now expects to have a deficit of 87 million pounds for the 2023-24 financial year.
”The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability. The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately,” the Birmingham City Council said in a statement.
The current bankruptcy was years in the making. As per BBC, these claims date back to 2012, when a group of 170 women – including teaching assistants, cleaners, and catering staff – won the right to proceed with equal pay claims against the council at the Supreme Court. They claimed that the council failed to provide them with the same benefits and payments as men doing equivalent work.
The council has also blamed the expenses of a new cloud-based IT system by Oracle and years of funding cuts by successive Tory governments for its financial troubles, according to the Independent,
The IT system was supposed to cost 19 million pounds, but after three years of delays in getting it in place and problems once it was installed mean it is now expected to cost 100 million pounds.
Further, inflation, rising demand for adult social care, and ”dramatic reductions” in income from business taxes are being touted as the reasons behind the crisis.
Sharon Thompson, deputy leader of the council, told CNN, ”Local government is facing a perfect storm. 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.”
The government had already provided extra funding for the council, at around 10 percent of its budget, but ”it’s for locally elected councils to manage their own budgets,” Prime Minister Rishi Sunak’s spokesman Max Blain told reporters on September 5.
The multicultural city, the largest in central England, hosted last year’s Commonwealth Games, and is scheduled to hold the 2026 European Athletics Championships.
However, a former adviser to Birmingham City Council told BBC that hosting the Commonwealth Games was among the reasons for Birmingham’s bankruptcy.