Labour-run Birmingham City Council has declared itself effectively bankrupt after being hit with a £760million bill to settle an equal pay claim.
In a statement on Tuesday, Europe’s largest local authority confirmed that it had issued the declaration that it cannot balance its books.
It said all new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately.
The council said it lacks sufficient resources to pay a £760million bill related to an equality claim, which is currently accruing at a rate of £5million to £14million a month.
Councilors from the local authority blamed the situation on ‘huge increases in adult social care demand… dramatic reductions in business rates’ and ‘rampant inflation.’
Birmingham City Council has declared itself effectively bankrupt after facing a £760million bill
A worker clears the street of rubbish in Birmingham city centre on September 5, 2023
All new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately
Councilors John Cotton and Sharon Thompson blamed the bankruptcy on ‘long-standing issues’ including the equal pay claims and the local authority’s costly efforts to install the Oracle ERP financial reporting software on its systems.
The councilors said the local authority’s financial problems ‘have been compounded by the reality that Birmingham has had £1 billion of funding taken away by successive Conservative governments,’ in a statement on Birmingham Live.
Conservative councilor Robert Alden hit back at the local authority’s leadership as he accused them of failing to ‘accept responsibility,’ according to Birmingham Live.
‘This cabinet will not accept responsibility – instead it’s trying to blame the government for a problem that was entirely caused by the decision making by this administration,’ Mr Alden said.
The bankruptcy means all services apart from statutory services and those that protect vulnerable people will stop immediately.
Birmingham City Council was in 2012 ordered to pay compensation to 170 of its former employees, over claims the local authority breached quality laws.
The lawsuit left the council facing a £760million bill to settle the claims, following a Supreme Court ruling that hundreds of mostly female staff had missed out on bonuses.
In June 2023, the local authority estimated it would cost £650million-760million to settle the claims. The council had previously paid out £1.1billion to settle equal pay claims.
The council has also sunk millions into a disastrous attempt to install Oracle’s ERP financial reporting software onto its IT systems.
The failed attempt saw Birmingham City Council forced to spend £46.53million to fix ‘urgent’ issues with its IT systems in June 2023, as it estimated the total cost of fixing the system would be in the region of £100million.
The council had initially budgeted just £19million to install the IT system, before admitting the project could cost more than five times that sum.
Councilors blamed rampant inflation for Birmingham City Council’s bankruptcy
Birmingham City Council has declared itself effectively bankrupt after facing a £760million bill
In July, MailOnline revealed Birmingham City Council paid millions to a private taxi firm to ferry children to school.
The local authority paid out hundreds to Green Destinations Ltd for short trips, including £210 a day – equivalent to £40,500 a year – to take one child on their daily three mile trip to school.
Rival taxi firms would have cost the council less than half as much as Green Destinations Ltd – with prices averaging £6million a year compared to the £17million sums charged by the Birmingham-based firm.
A spokesperson for the council said: ‘Birmingham City Council has issued a s.114 notice as part of the plans to meet the council’s financial liabilities relating to equal pay claims and an in-year financial gap within its budget which currently stands in the region of £87m.
‘In June, the council announced it had a potential liability relating to equal pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month.
‘The council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650m to £760m), but it does not have the resources to do so.’
The spokesperson said: ‘The council will tighten the spend controls already in place and put them in the hands of the section 151 officer to ensure there is complete grip.
‘The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.
‘The council’s senior officers and members are committed to dealing with the financial situation and when more information is available it will be shared.’