In a significant development, the Birmingham City Council, responsible for governing the UK's second-largest city, has made a consequential declaration of financial instability, effectively acknowledging its inability to settle £760 million ($955 million) in equal pay claims to female government employees. These claims pertain to historical pay disparities between men and women.

 As Europe's largest local authority, the council took a drastic step by issuing a section 114 notice, initiating stringent austerity measures that suspend all nonessential expenditures. This declaration comes in the wake of a severe financial shortfall, with Birmingham projecting a deficit of £87 million ($109 million) for the current fiscal year, as reported by Fortune. Worth noting, Birmingham was the proud host of the 2022 Commonwealth Games.

“The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,” the Birmingham City Council said in a statement.

“The notice means all new spending, with the exception of protecting vulnerable people and statutory services must stop immediately.”

In 2012, the Supreme Court ruled in favor of employees, mainly women, who had been denied bonus payments awarded to male-dominated roles in Birmingham's council. The council stated in June that it had already disbursed £1.1 billion ($1.4 billion) in equal pay claims over the past decade. However, it continues to grapple with ongoing claims, expected to accumulate at a monthly rate ranging from £5 million ($6.3 million) to £14 million ($17.6 million).

Birmingham, the UK's second-largest city, follows others like Woking, Croydon, and Thurrock in declaring bankruptcy. While Birmingham aims to protect vulnerable populations from the austerity measures, some council has raised taxes to bolster finances. In England and Wales, the funding gap for local authorities is projected to surpass £2 billion ($2.5 billion) in the 2023–2024 fiscal years, as per the Local Government Association. In the US, cities like Atlantic City, Cleveland, Oakland, and Richmond have experienced bankruptcy in the past.

A spokesperson for UK PM Rishi Sunak stated that local councils are responsible for managing their budgets. The government is providing £5.1 billion ($6.4 billion) in additional support to councils this fiscal year. Sunak has ruled out a bailout, citing Birmingham's financial mismanagement.

“It will be concerning for the people of Birmingham,” Rishi Sunak’s spokesman Max Blain said, as per Bloomberg.

The government had already provided extra funding for the council, at around 10% of its budget, but “it’s for locally elected councils to manage their own budgets,” Blain said.

The government was “engaging” with the council about “how they are able to focus on core services,” Blain added. Ministers also requested that it ordered an “independent governance review.”

Image source: ToI