Major UK city goes bankrupt over $1.5 billion equal pay claims

The council of the nation’s second biggest city, Birmingham, became the latest local authority to declare financial distress, with the opposition blaming Conservative governments of years of underfunding.

Birmingham City Council in England’s midlands said it had issued a Section 114 Notice under the Local Government Finance Act 1988, which blocks spending on all but essential services.

Leaders of the Labour-controlled council — one of Europe’s largest — called the move “a necessary step” to get spending back on a stronger footing.

They said “longstanding issues”, including “the council’s historic equal pay liability concerns” and rollout of a new computer system, had been compounded by cuts of £1 billion ($A2 billion) by successive Conservative governments since they came to power in 2010.

“Rampant inflation”, alongside increases in the cost of adult social care and reductions in business rates income had also combined to create “a perfect storm”, they added.

In June, the council revealed that it has to pay up to £760 million ($A1.5 billion) to settle historic equal pay claims but does not have the resources to do so.

The council had previously paid out £1.1 billion ($A2.2 billion) to settle the claims after the Supreme Court in 2012 ruled 174 former employees, consisting of mainly women, could launch compensation claims against the local authority.

As it stands, the council said there is an £87 million ($A171.5 million) “in-year financial gap” in its £3.2 billion-a-year ($A6.3 billion) budget.

Conservative councillors in the city, which is home to some 1.1 million people, blamed Labour mismanagement of public finances for the crisis.
 

In London, Prime Minister Rishi Sunak’s official spokesman said Birmingham had received a more than nine per cent increase in additional funding from a pot of £5.1 billion ($A10 billion) for local councils this year.

The department for local government has been in contact with the council and requested “assurances … about the best use of taxpayers’ money”, he told reporters.

“The government recognises that there are pressures that both central and local government face,” he added but indicated it was an issue for Birmingham’s leaders to resolve.

The news comes over a year after Birmingham City Council hosted the 2022 Commonwealth Games.
Before the event, the BBC reported the council was expected to contribute £184.2 million ($A362.3 million), £75m of which would come from what was referred to as ‘partners’.
 

‘Nothing left’

Birmingham’s effective declaration of insolvency follows Croydon Council in south London which issued a Section 114 notice in November last year because of a £130 million ($A255.7 million) black hole in its budget.

Thurrock Council in Essex, east of London, also declared itself in financial distress in December last year while Woking Borough Council, southwest of the capital, did the same in June.

SIGOMA, a grouping of 47 urban councils within the LGA, last week warned that one in 10 of its members were considered making the statutory admission that they have no prospect of balancing their books.

Nearly 20 per cent said they could do the same in the next year. High inflation, rising energy costs and wage demands have exacerbated government funding cuts to essential services, it said.

Councillors have to meet within 21 days of a Section 114 notice being issued and produce a budget that makes necessary cuts to reduce spending.

SIGOMA chairman Stephen Houghton said: “The government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last 12 months.” He added: “The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.”