Birmingham City Council, the governing body of the UK’s second-largest city, has issued a Section 114 notice, signalling a severe financial crisis. The council is grappling with an £87m budget shortfall for the current year and a staggering equal pay liability amounting to £760m.

The Section 114 notice, a statutory measure, has been enacted as the council acknowledges its inability to meet its ongoing financial obligations. This action effectively halts all non-essential spending, highlighting the gravity of the situation.

Alison Ring, Director for Public Sector and Taxation at ICAEW, commented: “We are likely to see more councils issuing s114 notices due to the increasing financial pressures they are facing. It is important to note that Birmingham City Council’s financial problems are not caused by speculative investments, as has been seen in other cases.

“ICAEW supports greater investment in local authority finance teams to successfully manage public sector expenditure, to mitigate the likelihood of councils running into financial difficulties in the future.”

Several factors have contributed to Birmingham City Council’s financial woes. These include significant costs associated with the troubled implementation of its Oracle IT system, amounting to £100m.

Additionally, the city has incurred expenses related to hosting the 2022 Commonwealth Games, which have reached £184m. The most substantial burden, however, is the outstanding equal pay liability, estimated to be between £650m and £760m, in addition to the £1.1bn already disbursed.

Fiona Greenway, the interim Director of Finance, has confirmed that the council lacks the necessary resources to cover the mounting equal pay costs and has no viable means of doing so.

Birmingham had already implemented spending controls in July, shortly after discovering the latest equal pay liability. This liability stems from a 2012 Supreme Court ruling that found female staff had been unjustly denied bonuses awarded to their male counterparts. Notably, the equal pay liability is increasing at a rate of £5m to £14m each month.

A spokesperson for the council stated: “The council will tighten the spend controls already in place and put them in the hands of the Section 151 officer to ensure there is complete grip.

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

A committee will soon be told that out of the £65m in required savings for the fiscal year 2023/24, £33m are deemed “high risk”, £29m “medium risk”, and only £3m are classified as “low risk” in terms of achievement. The financial challenges faced by Birmingham City Council underscore the urgency of addressing these issues to safeguard essential services and the city’s fiscal stability.