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Birmingham City Council, the largest local authority in the UK and Europe, has declared itself effectively bankrupt, becoming the latest local government body this year to declare it is unable to balance its books.
The Labor council in Britain’s second-largest city said on Tuesday it had issued a section 114 notice because of “unprecedented financial challenges”.
The company has largely blamed its woes on the need to settle historic equal pay claims worth up to £760m, more than its entire annual services budget.
The council added that it had imposed “strict spending controls in July”, halting all non-essential spending, and that government help was now “a necessary step in our quest to return our city to sound financial footing”.
Both Labor- and Conservative-led parliaments in England and Wales are under severe financial pressure due to rising social care costs, soaring inflation and falling revenues.
The total funding shortfall for local authorities in England and Wales is expected to rise to £2bn or more this year, according to the Local Government Association.
In July, the representative body warned that parliaments of all political colors were struggling to meet growing demand for the essential services they were required to provide by law, while meeting legal obligations to balance the books.
Birmingham announced last month it faced a budget shortfall of £87.4m in 2023-24, rising to £164.8m in 2024-25.
By issuing the Section 114 notice, the city council pledged to scale back spending to all but essential services in exchange for help from the central government to stabilize the financial outlook. Other councils, including Thurrock and Woking, have been forced to do the same in recent months.
Birmingham City Council said on Tuesday: “Like local authorities across the country, Birmingham City Council is clearly facing unprecedented financial challenges, from a significant increase in adult social care needs and a significant reduction in business rate revenue, to the impact of rampant inflation.”
Since the Supreme Court ruled in 2012 that the council discriminated against female employees on pay grounds, the council has paid out more than £1bn to settle claims. But the local authority said in June it had also uncovered significant additional payments.
With ongoing claims-related liabilities growing at a rate of between £5m and £14m a month, it will not be able to cover costs with existing resources, including provisions, the report said.
In recent years, the council has presided over a massive rebuilding program. Funded through public and private investment, the project reintegrates an old industrial wasteland with Birmingham city centre, fueling a boom in the tech sector and more.
In the process, Birmingham’s economy has become one of the best performing in the country.
But the council’s opposition Conservative leader, Robert Alden, said the city’s “golden decade” of opportunity heralded last year would be undermined by its new financial woes.
He said the Labor leadership’s overspending and failure to address historic wage claims more urgently had “created chaos and residents will now lose valuable services and investment”.
This article has been amended to clarify details about the insolvency of Birmingham City Council
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