It’s shocking news to hear that Birmingham City Council have gone bust! Not only does it affect local people and businesses like ourselves as cleaners covering the Birmingham area, but further afield with the Council being the largest Local Authority in the whole of Europe.
After all, Birmingham is the second largest city, and the West Midlands is a prosperous area with thriving industries such as the manufacturing sector.
Suppose a Council of this size can go under. In that case, it sends poor vibes elsewhere and potentially others going the same way (apparently the seventh local authority already to have gone this way since 2020 and the COVID pandemic).
So, has the Birmingham City Council gone entirely bankrupt?
Technically, not yet, but practically, they have restraints on what they can spend as if they are in this state.
What they call a ‘section 114’ notice has been served, which says that additional services have to go on hold, for example, building changes, parks and leisure centres. However, core statutory ones such as education, waste and recycling, and health and social care can continue.
Big-ticket and non-essential costs and services are therfeore on hold, with future spending commitments frozen. You then have the central government involved and Secretary of State Michael Gove, plus government-appointed commissioners (complete details on the Council’s website here).
How much is Birmingham City Council in debt?
The numbers are eye-watering and in the millions.
There is a shortfall of approximately £90 million this year between 2023 and 2024, but it looks like this will double in the following 2024/25 years. There’s then talk of bills like £760 million they have had to pay!
How did Birmingham Council go bankrupt?
Good question, and as is often the case, various issues come together to force a situation like this. The main ones appear to be:
1. Equal pay costs
A large payout back in 2012 was declared for female employees and their bonuses as part of the Equal Pay Act and Supreme Court judgment. It came to light that higher pay and perks existed in some more male-dominated areas, such as construction and refuse collection. In contrast, female-focused ones like teaching assistants and dinner ladies were not so.
Therefore, the court decided that back compensation was due to people, with a vast £1.1 billion already being paid since then and yet more on the way.
Interestingly, from our perspective, this included Birmingham cleaners and other ones such as caterers. This quote says it all, really:
“We have to do the right thing. We have to make sure our people are paid equally and fairly. We need to ensure that our cleaners, teaching assistants, and refuse collectors are paid properly and fairly for their work.”
2. IT system problems
The Council brought in a new IT system called Oracle to deal with payment and HR issues, although it didn’t quite go to plan.
Although the original principle and specifications appear to have changed and tweaked to match the Council’s system, which complicated matters, severe consequences resulted including a reported bailiff going to a school and personal data breaches.
This meant a cost of over £45 million to resolve, although with reports that this will be double to more like £100m to finally resolve.
3. High one-off costs
Some other separate projects and costs will, of course, mount up, something that auguably isn’t such an issue in principle if genuinely required, for example, hosting the Commonwealth Games in Birmingham.
However, other reported ones include new street furniture and politically correct street names such as Diversity Way and Harmony Close.
This has been a specific reference to adult care cost increases, which links with the demographic challenges of Birmingham and other areas with increased dependency and knock-on issues like immigration.
Unfortunately, this becomes a separate political discussion emphasising costs and taxes, with Birmingham City Council being labour-controlled.
4. Usual cost increases and organisation
Of course, there are the usual issues that any Local Authority, organisation and business is bound to face nowadays, and that’s general cost increases. With inflation increases and scarcity of staff and supplies, costs are getting higher each year.
Plus, add the complexities of how things are administered and managed at such a large scale (Birmingham City Council is, after all, the largest Local Authority in Europe). Then, understandably, matters become complicated, slow and costly!
To what extent is Birmingham council in trouble?
An awful lot, by the sounds of it. There are large numbers to deal with and pay off the debt, and cost issues they’re facing now and in the future.
And yet, with such increasing needs and general cost inflation, something will have to break somewhere.
One option discussed is the Council's property ownership, which could raise large sums if sold. The National Exhibition Centre has already been sold, and now there’s mention of other jewels in the Birmingham crowns, such as the Central Library, Birmingham Museum and Art Gallery, Aston Hall, Birmingham Airport, and Sarehole Mill.
In the meantime, let’s hope that things work out and that at least core services can continue – including essential cleaning services in Birmingham!