ICSM Business Insolvency News: Birmingham Council issues a section 114 notice after running out of cash but there's a long history of councils that have gone bust - both Labour and Conservative 

By Harry Mottram: Those who can recall the days of Margaret Thatcher may also remember the Liverpool Council’s 1983 Rate Capping Crisis when the authority refused to set a budget in protest at the way central government restricted local government spending. It meant that along with a long list of other councils it was effectively bankrupt - although as with today’s announcement by Birmingham Council they assured residents that services would not be withdrawn - it led to an almighty political, financial and legal mess.

This week Birmingham City Council has declared itself bankrupt due to an unpaid bill of £760m over equal pay claims, while out of the headlines Hackney, Thurrock, Woking and Northamptonshire have also issued similar notices. It has prompted the issuing of a section 114 notice meaning the council will no longer spend any cash. The Labour run council announced: “Birmingham City Council has issued a s.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 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."

Ian Carrotte of ICSM said the situation was serious for the council’s many contractors and suppliers. He said: “From building firms to printers and from gardening contractors to cleaners the council owes it to suppliers to pay their invoices on time. By announcing they will no longer pay their bills it sends a message to anyone looking to do work for the council that they must work for free - which is unacceptable.”

Birmingham is not the first council to hit the skids. Hackney Council in 2000 went bust after poor accounting and bad management that led to council tenants putting up with unrepaired faults such as leaking roofs and even council vehicles running out of fuel. In 2018 Northamptonshire County Council (a Conservative run council) declared bankruptcy with a £70m shortfall in its budget leading to massive cuts and job losses. Slough hit the rocks in 2021, Thurrock in 2022, Croydon in 2022, Northumbria in the same year and Woking earlier this year. Labour or Conservative councils that get into trouble have one common factor in running up huge debts: their inclination to invest in commercial ventures and property deals using taxpayers’ cash rather than concentrating on running basic services. However Birmingham’s problem is  a historic one – of not paying women the same rate as men for work over many years. A case of the chickens coming home to roost – the past catching up with the present.

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