Birmingham City Council Bankruptcy: How Did They Get There and What Happens Next?

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Earlier this week, Birmingham City Council declared itself bankrupt after having issued a Section 114 notice, which states that no new expenditure can be made. This is only issued if the council does not have appropriate finances and cannot find a way to finance its budget. Following this notice, the council will have 21 days to hold a meeting with the full council to discuss how to proceed.

According to the notice issued, the members of the council will have to take immediate steps to recover the money they have lost and bring the general fund to a positive position. This has to include creating a savings plan, reviewing current assets and existing projects as well as making a request for financial support.

How Did Birmingham City Council Get to This Stage?

Birmingham City Council’s sudden bankruptcy announcement isn’t as sudden as you would think. The first financial hit that the council had to face was in 2010 when around 5000 female staff members won a case for equal pay, after having missed out on bonuses. As a result, the employment tribunal asked the council to pay close to £1.1 billion, which they have been paying off since then. As of now, the council has a £760 million bill which they still need to pay to settle the claims.

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In addition to this, the council was supposed to pay £19 million for a cloud-based IT system but the estimated cost of putting it in place now (after significant delays) is coming up to £100 million. All these heavy payments combined with fluctuations in certain budgets, inflation and cost-cutting have led the Birmingham City Council to this point.

Birmingham is not the only council to have declared bankruptcy, as Woking City Council also declared itself bankrupt earlier this year.  Since 2000, seven councils including Hackney (2000), Northumbria (2022) and Northamptonshire (2018) have had to issue a Section 114 notice. Jonathan Carr-West told The Guardian that Birmingham City Council’s announcement is indicative of the financial challenges local authorities have been facing.

He further adds: “Central government has kept councils living from hand to mouth and from year to year for far too long. Birmingham is the biggest council to fail so far, but unless something changes, it won’t be the last.”

What Does This Mean for The City?

While the notice does say that Birmingham City Council is bankrupt, it cannot be fully bankrupt since it still has a responsibility to the residents of the city. Therefore, certain statutory services such as education services, children’s safeguarding and care, adult care, bin collections etc. are unlikely to be affected.

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The BBC reports that the city council has not offered any information on which services will be sealed, however, there will not be any new spending. Any unessential expenditure that does not come under statutory services is likely to cease. There is also a chance that Birmingham residents will see an increase in local taxes and property prices.

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