Birmingham City Council effectively declares bankruptcy after being hit by £760m bill

Birmingham City Council has effectively declared bankruptcy after being hit with a £760m bill to settle equal pay claims.

The council said it had issued a section 114 notice, confirming that all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.

In a statement declaring itself in financial distress, the local authority said it will “tighten the spend controls already in place and put them in the hands of the section 151 officer to ensure there is complete grip”.

The Labour-run council is the largest local authority in Europe, comprising 101 councillors (65 Labour, 22 Conservative, 12 Liberal Democrat and two Green).

The statement read: “Birmingham City Council has issued a s.114 notice as part of the plans to meet the council’s financial liabilities relating to equal pay claims and an in-year financial gap within its budget which currently stands in the region of £87m.

“In June, the council announced it had a potential liability relating to equal pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month.

“The council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650m to £760m), but it does not have the resources to do so.”

It added: “The council’s senior officers and members are committed to dealing with the financial situation and when more information is available it will be shared.”

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Councillor Robert Alden, leader of the Conservative opposition, said: “Labour’s failure in Birmingham has become clear for all to see. What Labour pledged as a golden decade ahead to voters in 2022 turns out to be based on budgets in 20/21 and 21/22 that did not balance and were unfunded.

“Combined with Birmingham Labour’s refusal to deal with equal pay over the last decade this has created this mess where residents will now lose valuable services and investment.”

He added: “Birmingham Labour have no grip of their mess and no ability to fix it, hence why the final say on spending control has now been removed from the Labour political leadership.”

Other councils which have effectively declared bankruptcy

Hackney Council issued a section 114 notice in 2000, with Northamptonshire County Council following suit in 2018.

Croydon council issued its third section 114 notice in two years in November 2022, while Thurrock in Essex took the step in December last year after it got into difficulties over borrowing large sums to invest in solar energy.

Woking also issued a section 114 in June this year due to what it said was “an extremely serious financial shortfall owing to its historic investment strategy that has resulted in unaffordable borrowing, inadequate steps to repay that borrowing and high values of irrecoverable loans”.