Aall new spending except on protecting vulnerable people and statutory services has been halted at what is the largest local authority in Europe.
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.”
Councils are forced to issue a section 114 notice when they are unable to make spending commitments.
Birmingham’s financial troubles stemmed from a £760 million bill to settle equal pay claims following a landmark case brought against the council in 2012. However, it is not the only UK council that has faced financial difficulty in the last few years. In fact, it is the sixth council to issue an s.114 in the last five years. Let’s take a look at what is going on.
Councils that have gone bankrupt
Hackney Council, in east London, was the first local council to issue an S114 notice in 2000. It would be the only council for the next 18 years to admit to a financial crisis and file an S114.
Tory-run Northamptonshire declared effective bankruptcy in February 2018 and then again in July. The council was able to dodge a third insolvency later that year after it was allowed to use funds from selling its offices to avoid further financial setbacks.
Labour-run Slough was looking at a £100 million black hole in its budget when it was forced to issue an S114 in 2021. At the time, the financial challenges were attributed to poor management.
Communities secretary Robert Jenrick said at the time: “Slough Council’s financial position and clear mismanagement is deeply concerning and completely unacceptable – local people deserve better than this from their local council leaders.”
Tory-led Thurrock declared bankruptcy in 2022 after finding itself in a perilous financial position. The council had racked up a debt of £469 million.
In 2022, Croydon declared itself bankrupt for a third time with debts soaring to £130 million. A spokesperson for the Government said: “We have appointed an independent panel to address the significant governance and financial failings in Croydon and will continue to monitor progress to ensure the council delivers for its residents.”
In June 2023, Woking issued an S114 as it faced a deficit of £1.2 billion. Cllr Ann-Marie Barker, the leader of Woking Borough Council, said at the time: “My administration has been very clear about the huge financial challenges facing the council due to the legacy of inherited debt.
“The Notice makes clear the true scale of these challenges which are so significant that the Council cannot simply deal with them on its own. We must work in partnership with the whole of the government and its agencies to support us in delivering a robust Improvement and Recovery Plan.
The latest council to declare effective bankruptcy was Birmingham and a number of other local councils have signalled financial distress after a decade of austerity followed by the pandemic.
What does it mean if a council goes bankrupt?
Councils can’t officially go bankrupt’but they can announce that they are unable to make spending commitments.
Once a S114 notice has been issued, the council has 21 days to meet and discuss what to do next. According to the House of Commons library, some councils will then decide to make an amended budget that reduces spending on services.
Another option is that councils can seek a “capitalisation direction” from the Government, where councils are allowed to use capital funds to top up service spending.
Which councils are at risk of going bankrupt?
Over the last few years, there’s been a growing number of local councils declaring bankruptcy. Unfortunately, this trend doesn’t show any signs of letting up.
An alarming 30% of UK councils were considering an S114, with many authorities struggling to make dwindling budgets last.
Sir Stephen Houghton, the Labour leader of Barnsley Council and Sigoma chair, was quoted saying: “The government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last 12 months.
“At the same time as inflationary pressure, councils are facing increasing demand for services, particularly in the care sector.
“Pay increases are putting substantial pressure on budgets, and so the government must ensure that local authorities have the additional funding they need to fully fund these pay increases or risk impacting future service delivery.
“The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.”