Labour-run Birmingham City Council, the largest local authority in Europe, has made a significant announcement as it declares itself effectively bankrupt.
The reason behind this declaration is the staggering £760 million bill it faces to settle an equal pay claim.
This dire situation has led the council to issue a Section 114 notice, effectively halting spending on anything other than essential services.
A Massive Equal Pay Claims Bill
The city council is grappling with a monumental financial burden, ranging from £650 million to £760 million, directly linked to equal pay claims.
This financial predicament is exacerbated by the fact that the bill continues to accrue at an alarming rate of £5 million to £14 million every month.
Councilors from the local authority attribute this dire financial state to several factors, including “huge increases in adult social care demand,” “dramatic reductions in business rates,” and the pervasive issue of “rampant inflation.”
Immediate Impact: Service Cutbacks
As a consequence of declaring bankruptcy, Birmingham City Council is compelled to cease all services, with the exception of statutory services and those that protect vulnerable individuals.
This abrupt halt to non-essential services will undoubtedly have far-reaching implications for the residents of Birmingham.
Historical Context: Equal Pay Claims
This financial crisis has its roots in a legal battle dating back to 2012 when Birmingham City Council was ordered to compensate 170 former employees.
These employees alleged that the local authority had violated equality laws.
Subsequently, the council was saddled with a colossal £760 million bill to settle these claims, following a Supreme Court ruling that highlighted the exclusion of hundreds of primarily female staff from receiving bonuses.
Official Statement from Birmingham City Council
In an official statement posted on Birmingham Live, the council explained the gravity of its financial situation: “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 that 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.”
Immediate Spending Controls
As a response to this financial crisis, the council is implementing stringent spending controls, which will be overseen by the Section 151 Officer to ensure thorough management.
This Section 114 notice effectively halts all new spending, with the exception of safeguarding vulnerable individuals and maintaining statutory services.
The council’s senior officers and members are resolute in addressing this dire financial situation, with a commitment to sharing more information as it becomes available.
The future of Birmingham City Council’s finances remains uncertain, but urgent measures are being taken to address the pressing issues at hand.