UK’s Second Biggest City Council Declares Itself Effectively Bankrupt

Tags: bankruptcy, Birmingham, Rishi Sunak, United Kingdom

The Birmingham city council has declared itself ‘effectively bankrupt’, due to multiple reasons such as equal pay claims and budget cuts by successive Conservative governments.

According to a report from The Independent, the Labour-run council might have to resort to shutting down services for the residents, such as libraries, lessening the trash collection frequency, or raise council tax.

It is reported that the city council has laid the blame for their financial woes on £760m (RM4.4bn) of equal pay claims, the expenses of a new IT system, and years of funding cuts by successive Tory governments, which led to an in-year financial gap in its budget of £87m (RM508.21m).

Section 114 notice issued

A Birmingham City Council spokesperson was quoted by the UK news daily that Birmingham City Council had issued a Section 114 notice after concerns raised by external auditors of the council’s financial liabilities relating to equal pay claims and an in-year financial gap within its budget totalling £87m.

A Section 114 notice basically means that the city council is admitting that their expenditure is higher than their resources. When this notice is issued, no new expenditures is allowed, except for funding statutory services and honoring existing commitments and contracts.

Back in June, the Birmingham city council revealed that they had paid almost £1.1bn (RM6.43bn) 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.

Birmingham is the United Kingdom’s second largest city, and its declaration of bankruptcy is expected to mean huge repercussions for the people of Birmingham. Despite its mounting financial pressures, Birmingham had gone ahead with hosting the Commonwealth Games last year.

However, in July, Britain’s Prime Minister Rishi Sunak has already ruled out a rescue plan for the struggling city council. Sunak’s spokesman told the press that the central government already allocated extra funding to the local council amounting to around 10% of its budget.