It’s not only Birmingham: who else will bear the brunt of council bankruptcy?

By Scarlett Clarke

Birmingham City Council made headlines in recent weeks as it declared itself “effectively bankrupt”. This news came in the wake of its spending on a “botched” IT system and £760 million worth of equal pay claims. As a result, the council issued a Section 114 notice, preventing any spending except that which is considered essential, such as caring for vulnerable people. Once a Section 114 notice is issued, no new spending can be approved, and the council must meet within 21 days to discuss next steps.

The implications of this are further strain on public services as well as uncertainty over what services will and will not be affected. There are concerns that libraries may have to shut, that bin collections may become more infrequent and that taxes will be raised, for example. This impacts both people receiving these services and the people working to provide them, as local workers can be dismissed and made redundant. 

Therefore, this suggests the effects of this will be felt most keenly by working class people and vulnerable members of society who depend most on these services. Especially given the context of the current cost of living crisis, it is perhaps important to note who is being affected by this and in what ways. Furthermore, the Fawcett Society reports that women will also be more affected by these cuts as they tend to depend more on public services such as nurseries and social care. Compounding with Birmingham City Council’s equal pay claims, this Section 114 announcement arguably sees women lose out twice. 

The effects of this will be felt most keenly by working class people and vulnerable members of society

Recent years have seen several councils similarly fall into financial ruin, leading to debates over whether local councils are to blame for their own financial mismanagement or whether it is the central government, controlled by the Conservatives, who are to blame for years of austerity and cuts to funding. On the one hand, Birmingham is just one of many councils to find itself unable to balance its books, following the likes of Woking, Slough, Thurrock and Northamptonshire, not to mention several being predicted to follow suit in the next 2 years, such as Kent. 

This pattern, following the last 13 years of Conservative leadership, could suggest that central government is at fault. However, this has not been an issue exclusive to Conservative premiership, with councils like Hackney’s financial troubles predating Conservative austerity. Furthermore, critics of Birmingham city council point to its excess spending on “vanity projects” such as the £184mn spent on the Commonwealth Games, suggesting it is the council to blame for taking risks with taxpayers’ money. Especially as it is now the taxpayers themselves who will face the consequences. 

To resolve these issues councils may seek to raise taxes. That being said, local councils are not at total liberty to do this as central government puts a limit on how high local councils can raise their council tax. Writing for the LSE blog in 2015, George Jones highlighted that council tax provides only 18 per cent of revenue for local authorities. Jones posited that the excessive centralism that pervades the relationship between local and central government is at fault for failure at the local level. It is this relationship which leads to the dependency of local government on central government for resources. 

Furthermore, in more extreme cases, council bankruptcy may seek resolution through central government taking over the council, as seen in Slough, or putting it into “special measures”. This was seen in Croydon in March after they went ‘bankrupt’ for the third time in 2 years due to “organisational dysfunction”. 

Should the council in question be controlled by their own party, it will reflect poorly on the central government.

This speaks to the interesting role of the working relationship between central and local government. Government will likely have less sympathy for the perceived financial mismanagement if the council in question is under the control of an opposing party. Furthermore, should the council in question be controlled by their own party, it will reflect poorly on the central government. Consequently, one can observe a history of differential treatment of councils on the brink of financial collapse based on the parties involved. This was highlighted by the Conservatives granting permission to Conservative-led Croydon to increase council tax by 15% in February 2023, despite it being three times the limit set by central government. Similarly, Tony Blair’s government bailed out the Labour-led Hackney Council, spending £25mn. 

Conversely, Prime Minister Rishi Sunak said of Birmingham that it was “not the government’s job to bail out the council for its financial mismanagement.” Clearly, this has not always been the party line, and history suggests it will unlikely continue to be should one of their flagship Councils be next to fall.

It seems both local and central government are keen to point the finger at each other but ultimately what is clear is that council bankruptcy is nothing new and in fact it is set to continue. The Local Government Group predict that 26 Councils in some of the UK’s most deprived areas are set to claim ‘effective bankruptcy’ in the next 2 years, and if Birmingham is anything to go by, marginalised groups are set to face the brunt of it. 

Image: Birmingham City Council House via Creative Commons

One thought on “It’s not only Birmingham: who else will bear the brunt of council bankruptcy?

  • The company involved in setting up their Oracle Cloud Financials system is the same company that did Croydon and then Durham University… Any wonder we can’t get our grant payments? Good choice DU 🫣

    Reply

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