Commissioners' statement on section 114 declaration

Commissioners arrived at Birmingham in October 2023 following the issuing of a s114 notice (often referred to as a bankruptcy notice). Since then, there has been a raft of external advice, much of which has been partial or ill-informed, including the latest letter from a number of academics and which raises questions around the legitimacy of the s114 notice, the robustness of the reported financial position and the need for savings and asset sales.  This note addresses these questions based on the perspective of fully informed specialist commissioners who have been working with the council for the past two years.

The s114 notice contained two figures. The first one was the in-year overspend in 2023/24 of £87m and the second was a projected £760m equal pay liability. On arrival Commissioners were satisfied that these two figures were reasonable, but on top of that there was a £375m budget gap in 2024/5 with no savings identified with which to address that gap. This revenue gap meant that if left unchecked -and BCC had absolutely no plans in place - the Council’s debts would increase by £375 million each subsequent year. At that stage the general reserves available to address these liabilities were insufficient, with the vast majority of reserves restricted to specific purposes such as expenditure on education. Claims that the Council was in reasonable financial health are entirely incorrect and based on a flawed analysis and a fundamental misunderstanding.

The Council would have incurred a significant equal pay liability without the statutory intervention requiring a serious change of approach by the Council. At the point of issue of the s114 notice and the Commissioners’ subsequent arrival there was no prospect that the work being undertaken on equal pay would end in an affordable settlement with the Trade Unions. There was no credible plan for this in existence and pay inequalities remained in place with the effect that the liability was increasing every day. It is also worth noting that the Council has, over almost 20 years, paid out considerable sums in equal pay settlements, at a direct cost to the citizens of Birmingham. The continuing failure to address these pay inequalities lay at the heart of this element of the Council's financial liability. The equal pay liability may now be settled but only because the problem has been gripped post the s114 notice and intervention. 

The Council, alongside its Commissioners, started the hard work of balancing the budget in late 2023. This has taken two arduous years, with the 2026/27 budget likely to be the first budget balanced without the use of income from asset sales. When the budget was set for 2024/5, £225m in asset sales was forecast to be required - this after £150m of planned savings.  Such savings have had to be found in local authorities throughout the country, but Birmingham's cumulative failure to make savings has, however, been quite exceptional. Birmingham simply has needed to significantly catch up, following a long period of non-delivery of savings and over-optimistic budget assumptions.

The Council and the Commissioners are now determined that the Council should provide good services on a financially sustainable basis. There have been many solutions put forward to Birmingham's financial woes. Some argue for the use of reserves, but you can only spend these once and you do need them for their proper purpose. In any event, as at the end of March available reserves were £177m, a figure still wholly inadequate to meet the likely liabilities and known deficits.

Others say the Council should borrow, and this is a focus of the work of some academics. Borrowing of course does need to be paid back, with interest, and this never seems to get the attention it requires in much of the ill-informed analysis. For the largest council in Europe to behave like a bad debtor shifting loans between maxed out credit cards is neither legal nor feasible.  

There is no magic fix to Birmingham's woes. They have been a long time in the making, and whilst good progress has been made by the new leadership recently, there remains a lot to do.   It is worth observing that Birmingham's particular financial difficulties are not the cause of its problems, but the consequence of them – for example, the disastrous implementation of Oracle and the failings of the Perry Barr housing development that have each left the Council with an additional £150m debt to name just two, were brought about by past failings of leadership, weak corporate governance and a cavalier approach to financial management (resonant of some of this ill-informed financial analysis). Housing is also under statutory intervention. SEND, thanks to the new leadership, is thankfully now coming out of intervention and is a signal of wider progress. It is salutary to note that the government’s intervention was directed at addressing six separately identified aspects of failure, of which the need to ‘clos(e) any short or long-term budget gaps’ was only one.

As we stand now the Council are on target to set a balanced budget in 2026/7 for the first time in three years and there is the prospect that asset sales of £750m will be sufficient to meet potential liabilities and deficits, though that is not yet certain - and as any well run public authority should, Birmingham City Council will manage its books with certainty in the future. 

The Council and its Commissioners remain focussed on improving services, balancing the books and helping Birmingham to return to its rightful place as a flagship council for its citizens and the country as a whole.

ENDS.