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

The local authorities running Britain's second-largest city, Birmingham, have shifted focus on maintaining vital services as they declared the council effectively bankrupt due to an annual budgetary shortfall of millions of pounds.

Birmingham City Council, which is run by the Opposition Labour Party and is the largest local authority in Europe comprising over 100 councillors, issued a Section 114 notice on Tuesday to say that all new expenditures with the exception of protecting vulnerable people and statutory services will stop immediately.

The council said the dire financial situation arose as it must fund an equal pay liability that has accrued to date in the region of GBP 650 million to GBP 760 million, but it does not have the resources to do so.

On that basis, the Council's Interim Director of Finance, Fiona Greenway, has issued a report under section 114(3) of the Local Government Act, which confirms that the Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability, the council statement reads.

The Council 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 notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately, it adds.

The UK government's Department for Levelling Up, Housing and Communities (DLUHC) said it had been "engaging regularly" with the council in recent months over the "pressures it faces" and had "expressed serious concern over its governance arrangements".

"We have requested written assurances from the leader of the council that any decision regarding the council's issues over equal pay represents the best value for taxpayers' money," DLUHC said.

Andy Street, the Mayor of the West Midlands region which covers Birmingham, said the news was "deeply disturbing" for residents and called for an "inquisition" into what had happened.

"It is no secret that local authorities up and down the country have faced significant cuts over the past decade even if the funding from government has been improving in recent years and it has been a real challenge to keep services running to the standard that people expect," said Street.

"However, the huge majority of councils of all political colours are managing to achieve this, with bankruptcy extremely rare," he added.

Birmingham Council has paid out almost GBP 1.1 billion in equal pay claims since a landmark case was brought against the authority in 2012. The UK Supreme Court ruled in favour of 174 mostly female employees working in roles such as teaching assistants, cleaners and catering staff who had missed out on bonuses, which were given to staff in traditionally male-dominated roles such as refuse collectors and street cleaners.

In a joint statement, council leader John Cotton and his deputy, Sharon Thompson, said: "Like local authorities across the country, it is clear that Birmingham City Council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates income to the impact of rampant inflation.

"Despite the challenges that we face, we will prioritise core services that our residents rely on, in line with our values of supporting the most vulnerable.