On Tuesday, September 5, Britain’s second-largest city Birmingham officially declared itself bankrupt. The decision was reportedly taken as the Birmingham City Council, the largest local authority in Europe, as it doesn’t have enough money to pay £760 million ($955 million) in equal pay claims it owes to female government employees who were paid less than their male counterparts in the past.
The other reasons the council cited for its financial woes are problems installing a new IT system and £1 billion in government cuts.
The city’s council issued a Section 114 notice on Tuesday to meet its financial liabilities, it said in a statement.
A Section 114 notice means that a council is unable to meet its financial liabilities and cannot commit to new spending. After the notice is issued, the local authorities shift focus on maintaining only vital services and halting those they deem ‘unessential.’ It often leads to a new budget with reduced expenditure.
The council said that the dire financial situation arose as it must fund an “equal pay liability” but it does not have the resources to do so. “On that basis, the Council’s Interim Director of Finance, Fiona Greenway, has issued a report under section 114(3) of the Local Government Act, which confirms that the Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,” the council statement read.
“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,” it added.
Sharon Thompson, deputy leader of the council said it faces “longstanding issues, including the council’s historic equal pay liability concerns”. Thompson also blamed the ruling Conservative Party, saying Birmingham “had £1 billion of funding taken away by successive Conservative governments.”
Meanwhile, a spokesperson for UK Prime Minister Rishi Sunak said the responsibility for effective budget management lies on elected councils.
Reasons for Birmingham City Council’s bankruptcy
The equal pay claim was a major factor contributing to the city’s bankruptcy. The local authority said it was required to pay up after a Supreme Court judgement in 2012 agreed with a group of mostly female employees who had missed out on incentives offered to staff in typically male-dominated professions at the council. It has already paid out more than £1 billion on the equal-pay claim and has been hammered with expenditures from a new IT system.
The council also blamed “unprecedented financial challenges,” such as inflation, increased need for adult social care, and “dramatic reductions” in income from business taxes.
Birmingham is the most populous city in central England. It hosted the Commonwealth Games last year, a significant athletic event for Commonwealth countries, and is set to host the European Athletics Championships in 2026.