Birmingham City Council has issued a section 114 notice after facing insurmountable financial pressures.
The authority ceased non-essential spending in July and shortly after revealed that it faces an in-year budget shortfall of £87.4m for 2023/24, rising to £164.8m in 2024/25.
The council is also facing additional costs associated with equal pay claims of between £650m and £760m, and the prospect of spending £100m to fix implementation issues with its Oracle IT system.
Commenting on the financial situation, a Birmingham City Council spokesperson said: “Birmingham City Council has issued a section 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 that 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.
“On that basis the council’s interim director of finance Fiona Greenway [and section 151 officer] has issued a report under section 114(3) of the Local Government Act, which confirms that the council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability.
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“The council will tighten the spend controls already in place and put them in the hands of the section 151 officer to ensure there is complete grip. The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.
“The council’s senior officers and members are committed to dealing with the financial situation and when more information is available it will be shared.”
Largest council to issue s114
Labour-run Birmingham City Council is the largest local authority in the UK by population and has 101 councillors. Other authorities including Woking, Thurrock and Croydon have issued section 114 notices in the past, however, no council of Birmingham’s size has issued one before.
Commenting on the issuance, Becky Hellard, Birmingham’s previous section 151 officer, told Room151: “The equal pay liability has been known about for a while now and my advice was, at the time, that a s114 would be required.”
Hellard worked at Birmingham City Council for almost four years. In 2019, she was appointed as interim director of finance and governance and later undertook a permanent role as strategic director of council management in September 2021.
Greenway replaced Hellard as Birmingham’s section 151 officer in April 2023.
Birmingham faces ‘longstanding issues’
In a cabinet meeting held this morning (5 September), deputy leader of the council Sharon Thompson said: “Despite the challenges that we face, we will prioritise core services that our residents rely on, in line with our values of supporting the most vulnerable.
“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 has had £1bn worth of funding taken away by successive Conservative governments.
“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 income, to the impact of rampant inflation.
“Here in Birmingham, we implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support. Today’s issuing of a section 114 notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents.
“This is a challenging time for the council, but we are doing everything we can to continue supporting the people of Birmingham, the staff at this authority, and everyone else who is a stakeholder across this city. The city is still very much open for business.”
Issuance ‘blown the head gasket’
Commenting on the significance that Birmingham’s issuance of an s114 will have on the local government sector, Nathan Elvery, the past president of the Association of Local Authority Treasurers and founder and managing director of Imagine Public Services, told Room151: “The machinery of local government funding has been been in need of a good service for far too long, the wheels have been wobbling and the engine creaking with the sounds of s114 metal upon metal and the oil runs dry.
“The news of Birmingham’s s114 notice has blown the head gasket and perhaps now the government will finally take notice that local government needs to be funded adequately for the role and responsibilities it delivers to every person, every community, every single day for every part of our country.”
Former chief executive of the London boroughs of Richmond and Hammersmith & Fulham Richard Harbord said Birmingham’s case might be exceptional, though. He commented: “As Birmingham are such a large authority it is obviously significant that they have had to take the steps to issue a section 114 notice; this does not, sadly, come as any surprise.
“It has been obvious for some years that the effect of the equal pay dispute resolution was going to be hugely significant. Reports say that they failed to make provision for this as an ongoing commitment and the amounts quoted are in excess of £650m arrears plus the ongoing sums.
“Birmingham will be subject to the same other pressures as most authorities but to have this commitment in addition would make life extremely difficult. Given the size of this one commitment it is probable that without that they would have been in similar difficulties to local government generally. They say there is an £87m financial in year gap but that would not be unexpected given the size of the sector.
“A number of other authorities were also involved in similar disputes and relatively few would have been faced with large amounts to pay to settle. It will be interesting to see the outcome of this as in many ways it is very different from other authorities issuing section 114 notices.
“When the Governance Report, which has been commissioned, is published, it will become apparent as to why this accrued commitment has not been financed already.”
Why the section 114 notice has been issued now
Interim section 151 officer Fiona Greenway gave the following six individual factors as reasons for issuing the section 114 now:
- Correspondence from external audit on 1 September 2023 which raises concerns around the provisions for equal pay in prior year accounts, 2020/21 and 2021/22, being materially understated which means the council would have exhausted its general fund balance on an accounting basis.
- Further confirmation of the historic value of the potential equal pay liability impacting prior years, which is becoming more evident that it is unaffordable for the council based on existing available reserves. “Since the announcement of the equal pay liability we have received additional correspondence to put the council on notice of further litigation from recognised trade unions and claimant lawyers,” Greenway said.
- Correspondence from external audit on 1 September 2023 also enquires around the likelihood of the council being able to generate savings, additional revenue income, and/or capital receipts to mitigate the financial challenges.
- A projected deficit of £87m for the 2023/24 financial year, for which the council does not have sufficient reserves based on the equal pay liability above, which is forecast to grow in the 2024/25 financial year.
- Concerns over the speed and effectiveness of the mitigations which have been put in place to address the in-year budget challenges, and the ability of the council to address the financial position. “We must now make challenging financial decisions and stop nonessential spending,” Greenway noted.
- Extensive discussions with external auditors, regulatory stakeholders, and leading Kings Counsel who have confirmed our assessment of our financial position (i.e. liabilities exceeding assets) and statutory position (i.e. the requirement to issue a s114). This advice has confirmed the points raised above and the case for issuing a s114 notice.
Following the issuance of the section 114 notice the council has 21 days to hold a meeting of full council to consider the report from the section 151 officer and decide how it will respond.
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