- The Labour-run local authority will halt all non-essential spending in the city
- Councilors blamed falling business rates, inflation and adult social care bills
Birmingham City Council will be forced to cut local services and may withdraw funding for major events including the European Athletics Championships in 2026 after effectively declaring bankruptcy earlier today, council bosses have warned.
The council said today it would cut all spending on non-essential services, as it stressed it was unable to balance its books while facing a £760m bill related to the equal pay claim.
The crisis has now seen a blame game erupt within the local authority with Labor leaders on the council saying “massive increases in demand for adult social care… significant cuts in business income rates”. [and] Rampant inflation was the reason.
In turn, Conservative councilor Robert Alden claimed that Labour’s “refusal to address equal pay over the past decade” would now result in Birmingham residents “losing valuable services and investment”.
Liberal Democrat group leader Roger Harmer also criticized the Labour-led council as he said “serious failings” in its handling of the equal pay crisis and its disastrous push to install financial reporting IT system Oracle ERP were to blame.
In a statement, Birmingham City Council – the largest local authority in Europe – today confirmed it had made a declaration that it could not balance its books, stating all new council spending in the city, except for safeguarding vulnerable people and legal services, must stop immediately.
The council said it lacks sufficient resources to pay the £760m bill related to the equalization claim, which is currently accumulating at a rate of between £5m and £14m a month.
Council leader John Cotton told BBC Radio that the local authority would now have to make “tough and strong decisions” about cuts to services, which could include withdrawing funding for events including the 2025 European Athletics Championships.
However, the head of the local authority stressed that the council “will continue to provide essential services such as child protection and social care, adult social care, education, waste collection, road maintenance and library services.”
Councilors from the local authority have blamed the situation on “massive increases in demand for adult social care… significant cuts in business rates” and “rampant inflation”, which they claim has been “exacerbated” by a lack of funding from the UK Government.
Labor councilors John Cotton and Sharon Thompson blamed the bankruptcy on “long-standing issues” including equal pay claims and a costly effort by the local authority to install Oracle ERP financial reporting software on its systems.
Labour’s Ms Thompson said: “I want to stress that despite the significant challenges we face, we will prioritize the essential services our residents rely on in line with our values to support the most vulnerable in this city.”
Birmingham City Council faces long-standing issues, including historical liability concerns around pay equity and the implementation of Oracle ERP which have been exacerbated by the fact that Birmingham has had £1bn of funding taken by successive Conservative governments.
‘Local government is facing a perfect storm. Like councils across the country, this one is clearly facing unprecedented financial challenges, from massive increases in demand for adult social care and significant cuts in business rates income, to the impact of rampant inflation.
Conservative councilor Robert Alden hit back at the local authority leadership, accusing them of living in “cloud cuckoo land”.
“This government will not accept responsibility — and instead is trying to blame the government for a problem that resulted entirely from decision-making by this administration,” Alden said.
“Labour in Birmingham has no control over its mess and no power to fix it, which is why the final say on spending control has now been removed from Labour’s political leadership.”
The Tory councilor said: “Coupled with Birmingham Labor’s refusal to address equal pay over the past decade, this has created such a mess that residents will now lose valuable services and investment.”
Roger Harmer, leader of the Liberal Democrat group, said: “It smacks of sheer arrogance for the council to sit and blame others for their inability to run the council effectively.” Not one of them apologized to the people of Birmingham for this failure, not one.
“This decision will be felt acutely by the most vulnerable people in our city. Serious failings in adult social care, the equal pay crisis and the Oracle fiasco are what have pushed us over the edge.
“The pain of this decision will be felt by every citizen of Birmingham as we move into uncharted waters. Services will be cut to essential only, meaning many services that people rely on, and which are essential services for these people, will be cut.
Bankruptcy means that all services except legal services and those protecting vulnerable people will stop immediately.
The crisis comes after Birmingham City Council ordered compensation to be paid to 170 of its former employees, due to allegations that the local authority breached equal pay laws.
The lawsuit has left the council facing a £760 million bill to settle the claims, after the High Court ruled that hundreds of employees, most of them women, missed out on bonuses.
In June 2023, the local authority estimated that settling the claims would cost between £650 and £760 million. The council had previously paid £1.1 billion to settle equal pay claims.
The council also sunk millions into a disastrous attempt to install Oracle’s ERP financial reporting software on its IT systems.
The failed attempt resulted in Birmingham City Council having to spend £46.53 million to fix “urgent” problems with its IT systems in June 2023, with the total cost of fixing the system estimated to be in the region of £100 million.
The council had initially allocated a budget of just £19m to install the IT system, before admitting the project could cost more than five times that amount.
In July, MailOnline revealed that Birmingham City Council had paid millions to a private taxi company to take children to school.
The local authority has paid Green Destinations Ltd hundreds for short journeys, including £210 a day – the equivalent of £40,500 a year – to take one child on his daily three-mile journey to school.
Rival taxi companies would have cost the council less than half what Green Destinations Ltd costs, with fares averaging £6m a year compared to the £17m charged by the Birmingham-based company.
A council spokesperson said: “Birmingham City Council has issued Notice 114 as part of its plans to meet the council’s financial obligations relating to equal pay claims and the financial gap during the year within its existing existing budget in the borough.” Worth 87 million pounds sterling.
“In June, the council announced that it had potential liability for equal pay claims in the range of £650 million to £760 million, with ongoing liabilities accumulating at a rate of £5 million to £14 million per month.
“The council remains in a position to fund the equal pay commitments accumulated to date (in the range of £650 million to £760 million), but does not have the resources to do so.”
“The council will tighten the spending controls already in place and place them in the hands of the Section 151 officer to ensure full control,” the spokesman said.
“The notice means that all new spending, except for the protection of vulnerable people and legal services, must stop immediately.
“Senior council officers and members are committed to dealing with the financial situation and when more information is available it will be shared.”