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UK's second-largest city Birmingham effectively declares itself bankrupt | Here's WHY

The Birmingham City Council on Tuesday filed a Section 114 notice to halt all spending except on essential services - which will not cover statutory services.

Edited By: Aveek Banerjee Birmingham Published on: September 10, 2023 12:12 IST
British Prime Minister Rishi Sunak
Image Source : AP British Prime Minister Rishi Sunak

The United Kingdom's second-largest city Birmingham has effectively declared itself by shutting down all non-essential spending with equal pay claims rising as high as 760 million euros ($954 million). The city now expects to have a deficit of 87 million euros ($109 million) for the 2023-24 financial year, CNN reported.

The Birmingham City Council on Tuesday filed a Section 114 notice to halt all spending except on essential services. The council experienced difficuties in paying between 650 to 760 million euros in equal pay claims.

Why is this happening?

For years, Birmingham has struggled with increases in social care demand, reductions in business rate incomes and rising inflation. More than a decade ago, a 5,000-member female council staff won a case for equal pay at an employment tribunal in 2010 - after the workers claimed they were not given bonuses traditionally given to men, BBC reported.

Since then, the city council has paid almost 1.1 billion euros in equal pay claims and its bill increases by 14 million euros every month. To make things worse, Birmingham's new IT system by Oracle that handles payments, data management and background checks experienced problems. It was earlier supposed to cost 19 million euros but now delays for three years have raised the cost to around 100 million euros.

The Section 114 notice is a sign that Birmingham is unable to afford the means to meet its financial liability and cannot commit to any form of new spending. It also faced criticism for holding the Commonwealth Games in 2022 despite financial problems.

The council's nterim director of finance, Fiona Greenway, said that external auditors raised concerns about the money for equal pay claims and how Birmingham would be able to generate extra income given the huge deficit projected for this year.

Meanwhile, a spokesperson for the Rishi Sunak government said that it 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.”

What will happen now?

City councils cannot officially go bankrupt because they have to provide statutory services - like education, social care, waste collection, housing services and more. The Birmingham City Council told BBC that all new spending will be stopped with the exception of protecting vulnerable people and statutory services.

Additionally, council leader John Cotton insisted that vital services would be protected, warning of the need for "tough and robust decisions" to save the dilapidated financial situation of the city. The 2026 European Championships to be held in Birmingham has also raised concerns.

The Birmingham council is run by the Labour Party, so it has attracted criticism from Conservatives for failing to "show the proper speed and urgency needed to tackle equal pay". However, Sharon Thompson, deputy leader of the council, blamed successive Conservative parties for "taking away" funding of 1 billion euros.

In July, Prime Minister Sunak had ruled out a bailout for Birmingham City Council as it struggles to get to grips with a huge bill for equal pay claims. He said that "it was not the government's job to bail out the council for its financial mismanagement".

The council will hold an emergency meeting later this month and it's believed that there will be more talks with the government to decide a way forward.

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