Rampant inflation had created 'a perfect storm', the Birmingham City Council said. AFP

Birmingham residents have been warned “all bets are off” on what services could be cut after the city council declared itself effectively bankrupt.

The Labour-run council might have to shut libraries, lessen the frequency of bin collections or raise council tax after it issued a section 114 notice – meaning it cannot meet its financial liabilities.

The council has blamed £760m of equal pay claims, the expenses of a new IT system, and years of funding cuts by successive Tory governments for its financial woes. It has an in-year financial gap in its budget of £87m.

A Birmingham City Council spokesperson said: “Birmingham City Council has issued a 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.”

A section 114 notice means that Birmingham City Council, which is the largest authority in the UK and Europe, will stop all new spending, with the exception of protecting vulnerable people and statutory services.

Jonathan Werran, chief executive of Localis, an independent think-tank, said that a number of services for residents would now be in the firing line. “It’s like being up in a hot air balloon and then you throw things out of the basket to keep it up in the air... all bets are off,” he said.

Services that could face budget cuts include street cleaning, parks and maintenance, leisure, children’s services that are not social care, libraries and even the frequency that your bins are collected.

Geoff Winterbottom, head of research and policy at Sigoma, who represents 47 urban authorities in England, said the council could also raise council tax to help its financial problems.

At the moment councils can only increase the local tax by a maximum of 5 per cent without a referendum. However, due to its perilous financial situation, Winterbottom said the council could ask the government to allow it to increase it above the 5 per cent level without the need for a local poll.

Sharon Thompson, deputy leader of Birmingham City Council, told councillors at a meeting on Tuesday that the notice was a “necessary step as we seek to get our city back on sound financial footing”.

She said: “I want to stress that despite the significant challenges that we face, we will prioritise core services that our residents rely on in line with our values of supporting the most vulnerable in this city.”

In June, the council revealed it had paid almost £1.1bn in equal pay claims in the last 10 years after it lost a case at the Supreme Court in which female employees said they were not paid bonuses that were awarded to men on the same pay grade.

The council has a current liability relating to the claims between £650m to £760m, accruing at a rate of £5m to £14m per month. The council also said that “Birmingham had £1bn of funding taken away by successive Conservative governments.”

Leader of the Conservative opposition Robert Alden said it was “cloud cuckoo land” to say Birmingham’s problems are being replicated across the country and the situation was “embarrassing for this great city”.

In a statement, he said: “Labour’s failure in Birmingham has become clear for all to see, what Labour pledged was a golden decade ahead to voters in 2022 turns out to be based on budgets in 20/21 and 21/22 that did not balance and were unfunded.

“Combined with Birmingham Labour’s refusal to deal with equal pay over the last decade this has created this mess where residents will now lose valuable services and investment.”

The first section 114 notice was issued by Hackney Council in 2000, with Northamptonshire County Council following suit in 2018.

Croydon council issued its third section 114 notice in November 2021, while Thurrock in Essex took the step in December last year after it got into difficulties over borrowing large sums to invest in solar energy.

Woking also issued a section 114 in June this year due to what it said was “an extremely serious financial shortfall owing to its historic investment strategy that has resulted in unaffordable borrowing, inadequate steps to repay that borrowing and high values of irrecoverable loans”.

Shaun Davies, Chair of the Local Government Association (LGA) said: “Councils in England face a funding gap of almost £3bn over the next two years just to keep services standing still. Councils’ ability to mitigate these stark pressures are being continuously hampered by one-year funding settlements, one-off funding pots and uncertainty due to repeated delays to funding reforms.

“The government needs to come up with a long-term plan to sufficiently fund local services. This must include greater funding certainty for councils through multi-year settlements and more clarity on financial reform so they can plan effectively.”

The Independent