UK: Second-largest city Birmingham’s council declares itself bankrupt

Birmingham, the second-largest city in the United Kingdom with the country’s largest local authority, declared itself bankrupt, on Tuesday (September 5) after issuing a section 114 notice which indicates that it does not have enough resources to balance its books. However, the leader of the city’s council has insisted that vital services are safe.

‘Long-standing issues’

The opposition Labour-run council in central England has also blamed Conservative governments for years of underfunding as it scrambles to settle a 760 million pound (US$980 million) bill for equal pay claims.

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In the meantime, Birmingham City Council has issued a Section 114 Notice under the Local Government Finance Act 1988, which essentially blocks all spending other than essential services that it is obligated to provide by law, includingsocial care, waste collection and protecting the vulnerable.

The city council has also attributed their current predicament to “long-standing issues”, like installing a new IT system and one billion pounds (US$ 1.3 billion) worth of budget cuts over the past decade under successive Conservative governments.

“Like local authorities across the country, it is clear that Birmingham city council faces unprecedented financial challenges,” said the leader and the deputy leader of the Labour-run council John Cotton and Sharon Thompson, in a statement, as quoted by the Guardian.

It went on to list huge increases in adult social care demand, “dramatic reductions” in business rates income and “rampant inflation,” which created “a perfect storm” that the local government faces.

Cotton also said “tough and robust decisions” would be made amid fears that the budget cuts could affect the city’s roads, parks, and libraries. However, the Tory members on the council have blamed Labour’s mismanagement of public finances of the city which is home to over one million people.

During a council meeting, on Tuesday, Robert Alden, the leader of the Conservative opposition, accused the council of “lying to the people of Birmingham” and called their supposed claim of the city “facing a golden decade” under the Labour leadership “fools’ gold.”

A ‘concerning situation’: Downing Street

Meanwhile, Downing Street has called the situation “concerning” for residents. The government is doing its part and will provide an additional 5.1 billion pounds (US$ 6.4 billion) to councils in 2023-24, said British Prime Minister Rishi Sunak’s official spokesperson, adding that it would also be a more than nine per cent increase for Birmingham city council.

He added that “clearly it’s for locally elected councils to manage their own budgets”, and that the government had expressed concern about “their governance arrangements”. Furthermore, the British government has also “requested assurances from the leader of the council about the best use of taxpayers’ money”.

But he did go on to acknowledge that Birmingham had a “particular issue” with equal pay settlements and that the ministers had “commissioned an independent governance review which will report in the coming weeks”.

Croydon Council in south London issued a Section 114 notice in November last year after more than 100 million pounds black hole in its budget. In December, Thurrock Council in Essex, east of London had also declared itself in financial distress.

(With inputs from agencies)

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