The Labor-led Birmingham City Council has declared itself virtually bankrupt after being presented with a £760million bill to settle an equal pay claim.
In a statement Tuesday, Europe’s largest municipality confirmed that it had issued a statement saying it could not balance its balance sheets.
It said all new municipal spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately.
The council said it lacked sufficient funds to settle a £760million bill related to an equality claim, which is currently running at between £5million and £14million a month.
Local government councilors blamed the situation on a “huge increase in demand for adult welfare services, dramatic cuts in business tax rates” and “galloping inflation”.
Birmingham City Council has declared itself effectively bankrupt after a £760million bill
Councilors John Cotton and Sharon Thompson blamed the bankruptcy on “long-standing problems,” including equal pay claims and the local authority’s costly efforts to install Oracle ERP financial reporting software on their systems.
Councilors said in a statement on Birmingham Live that local government’s financial woes “were exacerbated by the fact that Birmingham has had £1 billion in funding withdrawn by successive Conservative governments”.
According to Birmingham Live, Conservative councilor Robert Alden hit back at local government leadership as he accused them of failing to “take charge”.
“This Cabinet will not take responsibility – instead it is trying to blame the Government for a problem that was caused entirely by the decision-making of that Government,” Mr Alden said.
Bankruptcy means that all services except those required by law and those protecting vulnerable people will cease immediately.
Birmingham City Council was ordered in 2012 to pay compensation to 170 of its former employees for local authority breaches of quality laws.
The lawsuit resulted in the council being faced with a £760million bill to settle the claims after a Supreme Court ruled hundreds of mostly female staff had failed to receive bonuses.
In June 2023, local authority estimated the claims would cost between £650million and £760million to settle. The council had previously paid out £1.1bn to settle equal pay claims.
The council also poured millions into a disastrous attempt to install Oracle’s ERP financial reporting software on its IT systems.
The failed attempt forced Birmingham City Council to spend £46.53million to fix “urgent” problems with its IT systems in June 2023 as it estimated the total cost of repairing the system at around £100million.
The council originally budgeted just £19m for the IT system installation before admitting the project could cost more than five times that sum.
City councilors blamed rampant inflation for the bankruptcy of Birmingham City Council
In July, MailOnline announced that Birmingham City Council had paid millions to a private taxi company to take children to school.
The local authority paid hundreds to Green Destinations Ltd for short trips, including £210 a day – the equivalent of £40,500 a year – to take a child on their three-mile daily commute to school.
Rival taxi companies would have cost the council less than half as much as Green Destinations Ltd – with prices averaging £6million a year compared to the £17million the Birmingham-based company was charging.
A City Council spokesman said: “Birmingham City Council has issued a Section 114 notice as part of plans to settle the Council’s financial liabilities related to equal pay rights and an interim financial gap in its budget that currently exists in the area .” from £87m.
“In June, the Council announced it had potential liability in relation to equal pay claims in the range of £650m to £760m, with ongoing liability ramping up at £5m to £14m per month.
“The Council is still able to fund the equal pay liability (in the range of £650-760m) accrued to date but does not have the resources to do so.”
The spokesman said: “The council will tighten the spending controls already in place and put them in the hands of Section 151 officials to ensure everything is under control.”
“The notice means that all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.”
“Senior officers and members of the Council are committed to looking into the financial situation and as more information becomes available it will be shared.”
