The largest local authority in Europe, Birmingham Council, was taken over by government-appointed commissioners after it had effectively gone bankrupt.
Birmingham Council has announced plans to sell £750 million of assets and increase the council tax to 9.99 percent in order to balance its budget.
The decision comes after the council
issued a Section 114 notice in September 2023, declaring itself effectively bankrupt after it failed to settle a £760 million bill on equal pay claims.
This led to commissioners, appointed by the UK levelling-up secretary Michael Gove,
taking over the council, its governance and scrutiny of its financial decisions. The commissioners instructed the council to balance its budget for the next two years.
A
report by the council’s finance director Fiona Greenway, has listed a number of measures the local authority has to take before it can resume medium-term financial planning.
The new savings programme, “unprecedent in scale,” includes a 9.99 percent increase in council tax, a reduction of spending for adults social care and children care services, as well as the sale of capital assets, worth of £750 million, such as buildings.
“Birmingham City Council is facing a number of financial challenges and I want to apologise unreservedly for both the significant spending reductions and this year’s substantial council tax increase.
“We have no alternative than to face these challenges head on. And we will do whatever is necessary to put the council back on a sound financial footing,”
said council leader, John Cotton.
Mr. Cotton said that a combination of factors led to the council’s insolvency, including austerity and underfunding.
He added that, much like other local authorities across the country, Birmingham council felt the squeeze of high inflation and the rising demand for services.
Analysis by the County Councils Network (CCN) has, last year,
revealed that social care was among the sectors, where councils were required to spend more than expected. This includes provision of care for children and adults, where an acute rise in costs resulted in millions of overspend.
Mistakes of the Past
While the government has recognised the budget challenges for councils in England and Wales, it also pointed to the failures of the Birmingham council leadership.
“Poor leadership, weak governance, woeful mismanagement of employee relations and ineffective service delivery have harmed the city,”
said Mr. Gove.
In Birmingham, the council’s failure to settle a £760 million bill on equal pay claims and a “flawed implementation” of a costly Oracle ERP software system, “have eroded” any room for manoeuvre, said the commissioners.
The
commissioner review said that unless the council successfully delivers on the Oracle programme and the effective recruitment of knowledgeable staff, the budget won’t be “deliverable.”
“The mistakes of the previous projects cannot be repeated,” the report added.
‘Last Thing People Want to See’
If the two-year budget, presented by the council, is approved by the commissioners, Birmingham residents will have to foot the increased council tax bill.The council recognised the impact of the 9.99 percent hike, which is above the government’s threshold of 4.99 percent.
It confirmed that a quarter of Birmingham’s 461,000 households are eligible for support, with £1.02 million of additional Council Tax Support Scheme made available to residents.
The council will also retain the
Discretionary Hardship Fund for residents who suffer severe financial hardship or whose tenancy is at risk.
“In the midst of the current recession and national cost-of-living crisis, with people across the UK facing the highest overall tax burden for over 70 years, I appreciate that a significant council tax increase is the very last thing people want to see, but we will continue to do everything we can to protect the most vulnerable across our city,” Mr. Cotton
said.
Birmingham is the latest council to have announced its effective bankruptcy, following similar cases of the Woking and Thurrock councils.
In 2022, the government appointed commissioners to both
Liverpool and
Sandwell councils to oversee the authorities’ financial management.
In England, a
total sum of £102 billion worth of debt has been reported across all of its 317 councils.
In January, the government
announced a £600 million support package for local authorities in England to help with the delivery of key services.
Despite the emergency injection of £600 million, the CCN
reported that out of 136 local authorities in England who have so far published their budget proposals, 128 plan on raising their council tax by the maximum this April.
