Birmingham City Council faces an in-year budget shortfall of £87.4m for 2023/24, rising to £164.8m in 2024/25 – before costs associated with equal pay claims of between £650m and £760m are even considered.
The extent of the authority’s financial troubles has been revealed in a report by Fiona Greenway, interim director of finance & section 151 officer, which updates the cabinet on Birmingham’s Medium Term Financial Plan (MTFP) refresh at Q1 2023/24.
The wider financial position of the council, in terms of capital expenditure and available corporate resources, is such that the budget gap and equal pay liability, when taken together, “cannot be found within existing [council] resources”, the report stated.
Without “immediate and urgent action”, the budget shortfall will not be met for 2023/24, Greenway warned.
The council is engaged in “ongoing” discussions with central government over the financial situation, Greenway said, but no assistance package has been agreed and Prime Minister Rishi Sunak has seemingly ruled out any bailout.
A Birmingham City Council cabinet meeting (25 July) is taking place today, in which the report will be discussed.
Greenway’s report recommends the implementation of a “robust” budget savings and recovery plan “to tackle existing budget pressures and the financial implications of the additional equal pay liability”.
The plan will set out a series of activities that Greenway said needed to be delivered over the next five years to achieve financial stability. All aspects of the council’s financial management systems, processes and capability will be reviewed in the plan, which aims to tackle financial pressures and rebuild corporate reserves over the medium term.
Mandatory spending controls at the council were also implemented earlier this month.
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“Across the country, many councils are facing significant and similar budget pressures – mainly due to increased demand for services from residents, higher than forecast inflation and difficulty with delivering existing savings programmes in this current economic climate. Therefore, the current MTFP forecasts for Birmingham City Council, while serious and requiring immediate attention, are not unique,” Greenway wrote.
“What is unique is the significant and additional forecast liability for equal pay claims of between £650m and £760m. The council has engaged with its external auditors and is having ongoing discussions with the Department of Levelling-Up, Housing and Communities.”
The authority is also set to spend £100m to fix implementation issues with its Oracle IT system, which is impacting on its ability to close its 2022/23 accounts.
“The time taken to fix this Oracle system has delayed the completion of the 2022/23 outturn report and final reserves position, which means that this report cannot fully consider the impact on reserves of future cost pressures,” Greenway wrote.
A more detailed calculation to assess the full extent of the equal pay liability is currently being carried out, using individual time-series data. The results are expected in August.
“The overall scale of the liability needs to be quantified to assess total costs and enable [the council] to explore all options for payment,” the report stated. “A provision for equal pay liability will also need to be made within all accounts that are not currently signed off by auditors – this includes the 2020/21, 2021/22 and 2022/23 financial years – to demonstrate the scale of the issue at that point in time. This provision cannot be made until a financial solution is agreed with national government and stakeholders. At that point, the accounts can be reviewed and signed off by auditors.”
The council’s Q2 MTFP refresh report is due to be presented to cabinet in October. “Significant work is required over the next few weeks to deliver on the proposed budget savings and recovery plan,” Greenway stated.
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