Birmingham — the biggest British city after London — is in dire financial straits.
The city’s council is one of a growing number of local government authorities in the United Kingdom making, or considering, painful spending cuts as a result of insufficient funds.
Birmingham’s effective bankruptcy is uniquely tied to hefty compensation claims it has had to pay former female employees who were historically paid less than men for similar work.
But it is not alone in facing a serious funding shortfall, which is partly a symptom of deep cuts to central government spending over the past decade that have left Britain’s public services, including schools and hospitals, in a state of disrepair.
“Local government is facing a perfect storm,” Sharon Thompson, Birmingham City Council’s deputy leader, said in remarks broadcast Tuesday. “Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business [taxes], to the impact of rampant inflation.”
The council said it would have to effectively declare bankruptcy because it had no more money to cover compensation awarded to former female staffers, which have been draining its coffers for years.
That left it with no option but to issue a so-called section 114 notice, which means it will need to halt all spending except on essential services, such as schooling, housing, social care, waste collection and road maintenance.
How Birmingham went bust
Thompson blamed Birmingham’s financial troubles partly on an outstanding legal bill pertaining to the equal pay claims, which resulted from a Supreme Court ruling in 2012. The bill amounts to between £650 million ($810 million) and £760 million ($950 million), based on the council’s current estimates.
The original case was brought by 174 former council employees, all except four of whom were women.
The group, which included cleaners, cooks and care staff, alleged they were denied bonuses and other payments made to men who were doing work of equal value. They argued that this breached the equality clauses of their employment contracts under the Equal Pay Act of 1970 — and the court agreed. Hundreds more workers have since made similar claims.
The council has already burnt through £1.1 billion ($1.4 billion) over the past decade to settle these claims and now expects to have a budget deficit of £87 million ($109 million) for the 2023-24 financial year.
“[The legal bill] is one of the biggest challenges this council has ever faced… It means there will be significantly fewer resources available in the future compared to previous years and we will need to reprioritize where we spend taxpayers’ money,” it said in a statement in June.
More councils at risk
Most areas of England have two tiers of local government, namely county councils — which cover regions of the country such as the West Midlands or Yorkshire — and district, city or borough councils.
London, because of the vast size of the population, has borough councils, which oversee service delivery for a cluster of the city’s neighborhoods.
Councils derive the majority of their income from taxes on residents and businesses, as well as from central government funding grants.
Alongside the equal pay claims and the costs of installing a new IT system, Thompson of Birmingham City Council also blamed the city’s downfall on the “£1 billion of funding taken away by successive Conservative governments.”