Birmingham issues section 114 notice amid "unprecedented financial challenges"
Birmingham City Council has issued a section 114 notice after finding that it cannot meet its financial liabilities resulting from equal pay claims of around £760m.
The council, which is the largest local authority in Europe, will now stop all non-essential spending and formally request financial assistance from the Government.
Birmingham is also contending with an in-year financial gap in the region of £87m.
In a joint statement quoted by the BBC, the council's leader, Cllr John Cotton, and its deputy leader, Cllr Sharon Thompson, said the notice was a "necessary step as we seek to get our city back on a sound financial footing".
They added: "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."
The pair noted that local government has faced "a perfect storm".
"We implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support," they continued.
"[Tuesday's] issuing of a Section 114 Notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents.
"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."
A spokesperson for the council said: "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.
"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."
In June, Birmingham said a "refreshed" look at its finances revealed it still had to pay between £650m and £760m to settle the equal pay claims, which date back to 2012. It also reported that the liability was accruing at an estimated rate of between £5 million and £14 million a month.
At the time, the council said the situation was "one of the biggest challenges [it] has ever faced".
Last week, a council report noted that a trade union had threatened Birmingham with fresh equal pay claims, which could add to the liability.
Commenting on Birmingham's announcement, Jonathan Carr-West, Chief Executive of think tank LGIU, said: “To see the largest local authority in the country effectively declare bankruptcy is a sobering moment. Questions will no doubt be asked about decision making and governance in Birmingham. But questions should also be asked about an inconsistent, fragmented and short-term funding system that is driving dozens of councils across the country to financial ruin.
"LGIU has been supporting councils for 40 years, but our members tell us that they are experiencing the most acute crisis they can remember. Not only has the amount of funding been slashed by government but councils have been made to rely on short term, piecemeal funding that inhibits effective financial management.
"Central government has kept councils living from hand to mouth and from year to year for far too long. Birmingham is the biggest council to fail so far, but unless something changes, it won’t be the last.”
Birmingham is the second council this year to have declared effective bankruptcy. Woking Borough Council issued its own s114 notice in June in response to a budget deficit of more than £1bn and a debt of £1.8bn, making it the most indebted council relative to size in the UK.
Woking's notice was preceded by Thurrock Council's in December 2022. Thurrock issued its s114 notice after council reports showed a 470m in-year funding gap, which was the result of financial losses from council investments.
Adam Carey
