Britain’s second-biggest city Birmingham effectively declared itself bankrupt, expressly curtailing all nonessential spending after being issued with equal pay claims totaling up to £760 million ($954 million).
Birmingham City Council, service provider to more than one million people, filed a Section 114 notice, halting all spending except on essential services.
The deficit arose due to difficulties paying between £650 million (around $816 million) and £760 million (around $954 million) in equal pay claims, the notice report says.
The city now expects to have a deficit of £87 million ($109 million) for the 2023-24 financial year.
Sharon Thompson, deputy leader of the council blamed in part the UK’s ruling Conservative Party, saying Birmingham “had £1 billion of funding taken away by successive Conservative governments.”
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“Local government is facing a perfect storm,” Thomson said. “Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes, to the impact of rampant inflation.”
“Whilst the council is facing significant challenges, the city is very much still open for business and we’re welcoming people as they come along,” she added.
A spokesperson for UK Prime Minister Rishi Sunak said: “Clearly it’s for locally elected councils to manage their own budgets.” The spokesperson said the government was “engaging regularly with them to that end and has expressed concern about their governance arrangements and has requested assurances from the leader of the council about the best use of taxpayers’ money.”
The council’s leader John Cotton said a new jobs model would be brought into the council to tackle the equal pay claims bill.
The city’s council is one of a growing number of local government authorities in the United Kingdom making, or considering, painful spending cuts due to insufficient funds.
Several other local councils have already declared themselves effectively bankrupt in recent months — including Croydon, part of greater London, and Woking, a town just south of the capital.
Most areas of England have two tiers of local government, namely county councils — which cover regions of the country such as the West Midlands or Yorkshire — and district, city or borough councils.
London, because of the vast size of the population, has borough councils, which oversee service delivery for a cluster of the city’s neighbourhoods.
Councils derive the majority of their income from taxes on residents and businesses, as well as from central government funding grants.
When the UK government adopted an austerity program in 2010 on the heels of the global financial crisis, it slashed funding to local councils.
According to the National Audit Office, government funding to local authorities in England dropped by more than 50% between the 2010-11 and 2020-21 financial years.
Councils face a funding gap of almost £3 billion ($3.8 billion) over the next two years “just to keep services standing still.”
A recent survey by the Special Interest Group of Municipal Authorities — a lobby group representing 47 urban authorities in England — found that 30% of its members are worried that they, too, face the risk of bankruptcy this year and next.
“The funding system is completely broken,” SIGOMA chair said in a statement last month. “Councils have worked miracles for the past 13 years, but there is nothing left.”