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Birmingham Financial Crisis: UK’s Second-Largest City Struggles Financially

Published by Chirag
Published Date: September 7, 2023 , Updated Date: September 7, 2023
Categories: Property Tax News

Birmingham, the UK's largest city after London, is currently grappling with a severe financial crisis that has brought it to the brink of fiscal instability. The city's council is just one among many local government authorities in the United Kingdom contending with painful budget cuts due to insufficient funds.

The Birmingham financial crisis is closely tied to the substantial compensation payments it has been obligated to make to former female employees who were historically paid less than their male counterparts for similar work. This financial crisis in Birmingham mirrors broader fiscal challenges across England, where most areas operate with two tiers of local government.

The Origins of the Birmingham Financial Crisis

One of the primary factors contributing to the Birmingham financial crisis is an outstanding legal bill of £760 million ($950 million) stemming from equal pay claims. These claims originated from a landmark 2012 Supreme Court ruling. The initial case involved 174 former council employees, most of whom were women, including cleaners, cooks, and care staff.

They alleged unfair denial of bonuses and other payments compared to their male counterparts performing equivalent work, a violation of their employment contracts under the Equal Pay Act of 1970—an issue the court upheld. Subsequently, hundreds more workers have filed similar claims related to Birmingham's financial crisis.

Birmingham financial crisis

Over the past decade, the council has already disbursed £1.1 billion ($1.4 billion) to settle these claims and now anticipates a budget deficit of £87 million ($109 million) for the 2023-24 financial year. In June, the council acknowledged that addressing this financial crisis presents one of its most formidable challenges ever, necessitating significant future resource reallocations and careful management of taxpayers' funds.

The Birmingham financial crisis reflects broader fiscal issues across England. Most areas operate with two tiers of local government: county councils covering regions and district, city, or borough councils. These councils primarily rely on taxes from residents and businesses, as well as central government grants.

Birmingham City Council's woes are further exacerbated by the equal pay claims and the cost of implementing a new IT system, compounded by the removal of £1 billion in funding by successive Conservative governments. This occurred alongside the UK government's austerity program in 2010 following the global financial crisis.

Birmingham Financial Crisis: Impact on the Budget

According to the National Audit Office, government funding to local authorities in England dropped by over 50% between the 2010-11 and 2020-21 fiscal years. Shaun Davies, chair of the Local Government Association, has underscored that councils now face a nearly £3 billion ($3.8 billion) funding gap in the next two years just to maintain current service levels. Numerous calls have been made for the government to formulate a long-term funding plan for local services.

Birmingham financial crisis

In response, a spokesperson for UK Prime Minister Rishi Sunak emphasised the autonomy of locally elected councils in managing their own budgets. Similar to the Birmingham financial crisis, several other local councils have already declared financial crises in recent months, including Croydon in Greater London and Woking, a town just south of the capital.

Birmingham may not be the last, as a survey by the Special Interest Group of Municipal Authorities—representing 47 urban authorities in England—indicates that 30% of its members fear financial crises in the coming year. The group's chair has highlighted systemic issues within the funding system and the depletion of council resources over the past 13 years, leaving little room for any kind of manoeuvre.

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