Birmingham City Council has become the latest since 2010 to declare itself bankrupt after racking up millions in debt.
The local authority issued a section 114 notice on Tuesday prohibiting any new expenditure after being hit with a £760 million bill to settle equal pay disputes, signalling it no longer has the resources to balance its budget.
In a statement declaring itself in financial distress, the council said it will “tighten spend controls already in place and put them in the hands of the section 151 officer to ensure is complete grip.”
In June, Birmingham City Council revealed it had been forced to pay out more than £1 billion in equal pay claims over the last decade, with a liability in the region of £650-750 million, accruing at a rate of £5 to £14 million a month.
In 2014, the authority lost a Supreme Court action brought by 147 former employees who claimed they were not paid bonuses awarded to men on the same pay grade.
Since then, hundreds more workers have made similar claims under the Equal Pay Act of 1970.
Alongside this, the authority also blamed issues installing a new IT system that would cost up to £100 million to fix, and £1 billion worth of government cuts over the past decade.
Figures published by the National Audit Office show government funding of local councils in England declined by more than 50% between 2010-11 and 2020-21.
Sharon Thompson, deputy leader of Birmingham Council, told councillors at a cabinet meeting on Tuesday that the notice was a “necessary step as we seek to get our city back on a 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.
“Birmingham City Council faces longstanding issues, including the council’s historic equal pay liability concerns and the implementation of the Oracle ERP system which have been compounded by the reality that Birmingham had £1 billion of funding taken away by successive Conservative governments.
The Labour run-council, comprising 101 councillors, is the largest in Europe and one of a growing number of local authorities across the UK making, or considering, significant spending cuts as a result of declining funds.
Thompson said: “Local government is facing a perfect storm. Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes, to the impact of rampant inflation.
“Whilst the council is facing significant challenges, the city is very much still open for business and we’re welcoming people as they come along.”
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.”
Rishi Sunak told MPs during PMQs that the Labour-run council was “failing hardworking people, losing control of taxpayers money, and driving their finances into the ground”
He added: “They’ve bankrupted Birmingham, we can’t let them bankrupt Britain.”
But while the Tories are quick to point the finger, perhaps they ought to look a little closer to home.
The first authority to declare bankruptcy in the two decades following the fall of Hackney, the Conservative-run Northamptonshire County Council was forced to issue a section 114 notice after years of financial mismanagement that resulted in debts of close to £1 billion.
Priding itself on having one of the lowest council tax rates of the Shire counties at a time when local budgets were being slashed against the backdrop of austerity, the authority failed to take into account population growth, and soon strategies such as privatising social care services backfired.
In the end, the council was forced to introduce a draconian cuts programme to overturn a £70 million budget deficit, just after it spent £53 million on a new headquarters.
In a damning report to the then communities secretary, James Brokenshire, commissioners Brian Roberts and Tony McArdle said the scale of cuts to services required to fill the funding gap would breach the councils’ legal obligations.
It uncovered an “ingrained culture of failure” in the Tory-run authority, following another two section 114 notices which were issued to end unnecessary spending.
The report, which acknowledged the council was “substantially restored” thanks to “successful government intervention”, added: “Hubris… An engrained culture of failure… Leadership with no sense of accountability or ownership, looking for others to blame.”
Another report published by Max Caller, the former chief executive of the London Borough of Barnet, called for the council’s abolition and replacement with two unitary authorities.
According to a blistering government-commissioned review, Tory-led Thurrock Council gambled hundreds of millions of pounds on risky commercial investments, while attempting to silence critics.
Forced to grapple with a £500 million deficit in late 2022, Thurrock was the fourth council to issue a section 114 notice following Northamptonshire County Council.
But the scale of the crisis facing the local authority was laid bare by the Bureau of Investigative Journalism which revealed senior officials had failed to act on warnings from financial experts over the “unprecedented risks” of investments it was pursuing with public money.
One of the most indebted councils in recent years after borrowing £1.5 billion from the Treasury and other local authorities, Thurrock’s collapse was a result of dysfunctional leadership characterised by “unconscious incompetence”, the review added.
It blamed the Essex council’s leadership for failing to challenge significant commercial investment decisions taken by the authority’s former finance director Sean Clark.
It was revealed that Clark borrowed from other local authorities to finance loans of more than £600 million to invest in 53 solar farms which exposed the council to serious losses.
The review added: “Our assessment therefore is that, although serious mistakes have been made by individuals, the challenges facing the council stem from a series of self-sustaining, systemic weaknesses which have allowed for repeated failure over many years.”
Recently taken over by the Liberal Democrats in May’s by-election, Woking Council declared its effective bankruptcy following a series of risky investments in hotels and skyscrapers under the previous Conservative administration.
The Surrey-based local authority issued a section 114 notice in response to “unpredicted financial challenges” after it revealed it faced a deficit of £1.2 billion.
Just this week, it announced a package of sweeping cuts to local services, including the scrapping of funding for dozens of the town’s sports pavilions and toilets, the closure of a swimming pool, and ending of council backing for some community centres.
It was revealed by the Guardian in June that most of the council’s spending was financed by an arm of the Treasury known as the Public Works Loan Board – with the authority’s situation so dire, it could have an impact on central government finances.
The local Conservative party was forced to issue an apology to resident for the financial state of the council, arguing that investments in a range of commercial assets were “made in good faith.”
Related: Nearly a third of councils in poor areas considering bankruptcy
