Bankrupt Birmingham braces for cuts as UK government takes control

By CNN Newsource

Published September 19, 2023 9:44 AM

By Hanna Ziady, CNN

London (CNN) — The UK government has moved to take control of the country’s second biggest city, Birmingham, after the local council effectively declared itself bankrupt earlier this month.

In a letter to the council Tuesday, the government proposed appointing commissioners to take charge of the daily running of the local authority and to oversee a financial recovery plan that could include job cuts, tax rises and the sale of assets owned by the council.

The government has also proposed an inquiry to understand how Birmingham landed in its current financial mess.

“I do not take these decisions lightly, but it’s imperative in order to protect the interests of the residents and taxpayers of Birmingham and to provide ongoing assurances to the whole local government sector,” housing secretary Michael Gove told UK lawmakers in the House of Commons on Tuesday.

“The need for action in Birmingham is pressing,” he added.

The biggest British city after London is one of a growing number of local government authorities in the United Kingdom facing serious funding shortfalls, partly as a result of deep cuts to central government spending over the past decade that have left Britain’s public services in disarray.

Birmingham City Council issued a so-called section 114 notice on September 5, which means it must halt all spending except on essential services such as schooling, housing, social care, waste collection and road maintenance.

The council’s financial woes stem partly from hefty compensation claims it has had to pay former female employees who were historically paid less than men for similar work.

The council has already burnt through £1.1 billion ($1.4 billion) over the past decade to settle these claims — which continue to mount — and now expects to have a budget deficit of £87 million ($109 million) for the 2023-24 financial year.

A financial recovery plan for the city published Tuesday suggests that job cuts, the sale of land and buildings, increased taxes on residents and businesses, and additional funds from government may all be needed to address Birmingham’s financial troubles.

“Our work to address the situation must be urgent, will involve hard choices about what we deliver, how we operate, and the shape and size of the organisation,” the council’s CEO Deborah Cadman said in the report.

The plan is due to be discussed at an extraordinary meeting of the council on September 25.