UK’s Second Biggest City, Birmingham, Declares Financial Distress
Birmingham
City in England
- Population: 11.5 lakhs (2019) Eurostat
- Neighborhoods: City Centre, Edgbaston, Digbeth, MORE
- Area: 267.8 km²
- Area code: 0121
- Metro population: 43,00,000 (ESPON metropolitan areas in the United Kingdom)
On Tuesday (September 5) Birmingham City Council, the UK’s second biggest city, announced its inability to balance its budget, citing years of under-funding by Conservative governments as the root cause. The council took the unprecedented step of issuing a Section 114 Notice under the Local Government Finance Act 1988, effectively halting non-essential spending.
Leaders of the Labour-controlled council defended their decision, deeming it a “necessary step” to restore financial stability. They pointed to “long-standing issues,” including challenges arising from the implementation of a new computer system. These challenges have been further exacerbated by successive Conservative governments, who imposed cuts totaling £1 billion ($1.25 billion) since assuming power in 2010.
The council leaders also identified “rampant inflation” as a critical factor, alongside rising costs of adult social care and declines in business rates income. These elements have combined to create what they describe as a “perfect storm.”
However, Conservative councilors within the council laid the blame squarely on Labor’s mismanagement of public finances.
In June, it was revealed that the council faced the daunting task of settling historic equal pay claims, with an estimated bill of up to £760 million.
Birmingham, a city of approximately 1.1 million residents, now finds itself at a financial crossroads.
This situation echoes similar financial crises experienced by other local authorities. Croydon Council in south London issued a Section 114 notice in November of the previous year, citing a £130 million budget deficit. Thurrock Council in Essex, located east of London, declared its own financial distress in December of the same year.
SIGOMA, a coalition comprising 47 urban councils within the Local Government Association (LGA), issued a warning last week that one in 10 of its member councils were considering making a statutory admission that they are incapable of balancing their budgets. Nearly 20 percent of them indicated that they might face a similar situation within the next year.
Factors such as high inflation, escalating energy costs, and wage demands have exacerbated the impact of government funding cuts to essential services, according to SIGOMA.
Councilors must now convene within 21 days of a Section 114 notice being issued and devise a budget that necessitates reductions in spending.
SIGOMA’s chairman, Stephen Houghton, emphasized the importance of the government recognizing the significant inflationary pressures that local authorities have grappled with over the past year. He concluded, “The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left.”
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