Birmingham City Council issues Section 114 notice, effectively declaring itself bankrupt

Birmingham City Council, the largest local authority in Europe, has issued a Section 114 notice, effectively declaring itself bankrupt.

The notice, issued on 5 September, stops all new spending except on statutory services, including the protection of vulnerable people.

What has happened

A Section 114 notice is issued by a council's chief finance officer when the authority cannot balance its books. It is the local government equivalent of bankruptcy.

The leader of the Labour-run authority said the notice was a necessary step to get Birmingham back on to a sound financial footing.

Why the council is in trouble

The crisis has been blamed on two main problems. The first is the council's liability for equal pay claims, brought mainly by female staff who were paid less than colleagues doing comparable work. The council has estimated that the bill could be as high as £760 million.

The second is the troubled introduction of a new Oracle IT system to run its finances and human resources, which has gone badly over budget and caused serious problems for the council's operations.

When it issued the notice, the council forecast that its reserves would fall into a deficit of around £677.9 million.

What it means for residents

Under a Section 114 notice, the council can only spend money on services it is legally required to provide. Other spending is frozen, and the council will have to make deep cuts to balance its budget in future years.

Council services such as bin collections, social care and support for vulnerable children will continue, but residents are likely to face reductions in other services and increases in charges.

Government intervention

The Government is expected to step in, with commissioners likely to be appointed to oversee the running of the council under emergency measures.

The council meets at the Council House on Victoria Square, first completed in 1879 for the old borough council, and has other offices including 10 Woodcock Street. The possible sale of some council buildings is expected to form part of efforts to address its financial difficulties.

A long history of financial pressure

Birmingham has faced serious equal pay claims for more than a decade. In 2014 the council warned it might have to sell assets such as the NEC Group to pay claims of more than £1 billion.

The notice makes Birmingham the largest council to take the step, and puts the future of services for more than a million residents under intense scrutiny in the months ahead.