Labour-led Birmingham Council 'going bust' could lead to 'tough' cuts
5th September 2023

Warnings that Labour-led Birmingham Council ‘going bust’ could lead to ‘tough’ cuts in services and large events including 2026 European Athletics Championship- as blame-game breaks out over crisis

  • The Labour-run local authority will halt all unnecessary spending in the city
  • Councillors blamed lower business rates, inflation, and adult social care bills 

Birmingham City Council will be forced to cut local services and could pull funding for major events including the European Athletics Championship in 2026 after declaring itself effectively bankrupt earlier today, council chiefs have warned. 

The council today said it would be cutting all spending on non-essential services, as it confirmed it is unable to balance its books while facing a £760million bill related to an equal pay lawsuit 

The crisis has now seen a blame game break out within the local authority as the council’s Labour leaders said ‘huge increases in adult social care demand… dramatic reductions in business rates incomes [and] rampant inflation’ were to blame. 

Conservative councillor Robert Alden in turn claimed Labour’s ‘refusal to deal with equal pay over the last decade’ will now see Birmingham residents ‘lose valuable services and investment’. 

Liberal Democrat Group Leader Roger Harmer also slammed the Labour-led council as he argued ‘serious failures’ in its handling of the equal pay crisis and its disastrous push to install the Oracle ERP financial reporting IT system were responsible. 

Birmingham City Council has declared itself effectively bankrupt after facing a £760million bill

A worker clears the street of rubbish in Birmingham city centre on September 5, 2023

All new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately

In a statement, Birmingham City Council – Europe’s largest local authority – today confirmed that it had issued the declaration that it cannot balance its books, as it said all new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately.

READ MORE: Binmen fighting for £760million equal pay deal are STILL knocking off early on full pay under emergency Covid measures council bosses are ‘too fearful’ to stop

The council said it lacks sufficient resources to pay a £760million bill related to an equality claim, which is currently accruing at a rate of £5million to £14million a month. 

Council leader John Cotton told BBC Radio WM the local authority will now be forced to make ‘tough and robust decisions’ about cuts to services, that could include pulling funding for events including the 2025 European Athletics Championships.

The local authority chief, however, confirmed the council would ‘continue to deliver on essential services like children’s safeguarding and social care, social care for adults, education, waste collection, road maintenance, and library services.’ 

Councilors from the local authority blamed the situation on ‘huge increases in adult social care demand… dramatic reductions in business rates’ and ‘rampant inflation,’ which they claim were ‘compounded’ by a lack of funding from the UK government.  

Labour councilors John Cotton and Sharon Thompson blamed the bankruptcy on ‘long-standing issues’ including the equal pay claims and the local authority’s costly efforts to install the Oracle ERP financial reporting software on its systems. 

Labour’s Ms Thompson said: ‘I want to stress that despite the significant challenges that we face, we will prioritise core services that our residents rely on in line with our values of supporting the most vulnerable in this city.

‘Birmingham City Council faces longstanding issues, including the council’s historic equal pay liability concerns and the implementation of the Oracle ERP system which have been compounded by the reality that Birmingham had £1 billion of funding taken away by successive Conservative governments.

‘Local government is facing a perfect storm. 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.

Councilors blamed rampant inflation for Birmingham City Council’s bankruptcy

Conservative councilor Robert Alden hit back at the local authority’s leadership as he accused them of living in ‘cloud cuckoo land’.

READ MORE: Now Birmingham wages war on motorists as Labour-run council plans to turn ring road into a ‘park that circles the city’ and build 124 miles of walking and cycling routes in bid to mimic the ‘cycle-friendliness’ of Copenhagen

‘This cabinet will not accept responsibility – instead it’s trying to blame the government for a problem that was entirely caused by the decision making by this administration,’ Mr Alden said. 

‘Birmingham Labour have no grip of their mess and no ability to fix it, hence why the final say on spending control has now been removed from the Labour political leadership.’

‘Combined with Birmingham Labour’s refusal to deal with equal pay over the last decade this has created this mess where residents will now lose valuable services and investment,’ the Tory councillor said.  

Liberal Democrat Group Leader Roger Harmer said: ‘It smacks of sheer arrogance, that the council can sit and blame others for their inability to manage the council effectively. Not one of them has apologised to the people of Birmingham for this failure, not one.

‘This decision is going to be felt most sharply by the most vulnerable in our city. The serious failures with adult social care, the equal pay crisis and the Oracle fiasco is what has pushed us over the edge.’

‘Every one of Birmingham’s citizens will feel the pain of this decision as we move into uncharted waters. Services will be cut to essential-only, meaning that many services that people rely on, services that are essential to those people, are going to be cut.’

The bankruptcy means all services apart from statutory services and those that protect vulnerable people will stop immediately. 

Birmingham City Council has declared itself effectively bankrupt after facing a £760million bill

The crisis comes after Birmingham City Council was ordered to pay compensation to 170 of its former employees, over claims the local authority breached equality laws surrounding pay. 

The lawsuit left the council facing a £760million bill to settle the claims, following a Supreme Court ruling that hundreds of mostly female staff had missed out on bonuses. 

In June 2023, the local authority estimated it would cost £650million-760million to settle the claims. The council had previously paid out £1.1billion to settle equal pay claims.

The council has also sunk millions into a disastrous attempt to install Oracle’s ERP financial reporting software onto its IT systems. 

READ MORE: Labour-run Birmingham City Council is under fire after £11M probe over eye-watering payments made to taxi firm charging more than £200 a day to take a child three miles to school and back

The failed attempt saw Birmingham City Council forced to spend £46.53million to fix ‘urgent’ issues with its IT systems in June 2023, as it estimated the total cost of fixing the system would be in the region of £100million. 

The council had initially budgeted just £19million to install the IT system, before admitting the project could cost more than five times that sum. 

In July, MailOnline revealed Birmingham City Council paid millions to a private taxi firm to ferry children to school. 

The local authority paid out hundreds to Green Destinations Ltd for short trips, including £210 a day – equivalent to £40,500 a year – to take one child on their daily three mile trip to school. 

Rival taxi firms would have cost the council less than half as much as Green Destinations Ltd – with prices averaging £6million a year compared to the £17million sums charged by the Birmingham-based firm. 

A spokesperson for the council said: ‘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 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.’

The spokesperson 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.’

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