Reports have emerged that Birmingham City Council, the second-largest city in the UK, has declared bankruptcy and initiated a suspension of all non-essential expenditures, a response to equal pay claims totaling a staggering £760 million ($956 million). The financial crisis can be attributed to the challenges of settling equal pay claims ranging from approximately $816 million to $954 million.
The Birmingham City Council disclosed a deficit of £87 million ($109 million) for the current fiscal year, coupled with a potential liability of £650 million to £760 million related to ongoing equal pay claims. Sharon Thompson, the deputy leader of the council, cited “longstanding issues” as the root cause, particularly referencing historical equal pay liabilities. Thompson also held the ruling Conservative Party accountable, asserting that Birmingham had suffered a £1 billion funding reduction due to successive Conservative governments.
Under the administration of the Labour party, Birmingham implemented a Section 114 notice, effectively suspending all non-essential spending and becoming the latest in a series of councils grappling with financial distress. Sharon Thompson emphasized that despite these substantial challenges, Birmingham remains open for business.
A spokesperson for UK Prime Minister Rishi Sunak attributed the responsibility for effective budget management to elected councils.
Key reasons behind Birmingham City Council’s bankruptcy include the substantial equal pay claims. The council acknowledged being compelled to make payouts following a 2012 Supreme Court ruling that favored a group of predominantly female employees who had been denied bonuses granted to their counterparts in traditionally male-dominated roles within the council. To date, the council has disbursed over £1 billion in response to these equal pay claims and also incurred expenses related to a new IT system.
Additionally, the council pointed to “unprecedented financial challenges,” including inflation, surging demand for adult social care, and significant reductions in income from business taxes.
A Section 114 notice is issued by a council when it anticipates that its income will fall short of covering its expenditures. Widely regarded as a form of municipal bankruptcy, this notice signifies an inability to make new spending commitments and frequently results in the implementation of a revised budget with reduced expenditures.
Birmingham, a diverse city in Central England that recently hosted the Commonwealth Games, is slated to host the 2026 European Athletics Championship.