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Friday, July 19, 2024

UK’s Second Largest City on Brink of Bankruptcy

ON TUESDAY, the UK’s second biggest city admitted that it could not balance its books as a PS760 million bill for equal pay claims piles up, and the local authority has to close down nonessential services. The Labour-controlled council in central England said it had issued a Section 114 Notice under the Local Government Finance Act 1988, which blocks spending on all but essential services. It is the most significant local authority in Europe to do so, and it marks a growing crisis in British local government, with experts warning that other councils are living “hand to mouth.”

The city, home to 1.1 million people, was hit by a series of financial crises over recent months. Its finances were thrown into turmoil by an unexpectedly steep rise in the cost of adult social care and dramatic reductions in business rates revenue, as well as by a botched IT project to install Oracle ERP financial reporting software that has led to staff being paid incorrectly. It is also dealing with a PS87 million gap in its budget this year.

Council leaders blamed Conservative governments for years of underfunding as they slammed ministers for refusing to meet councils’ demands for additional money. They said the problems were made worse by a massive increase in the cost of adult social care, ‘rampant inflation,’ and the council’s costly efforts to get Oracle ERP running on its systems.

A Lib Dem leadership group leader said the council had effectively declared bankruptcy by issuing a Section 114 notice, which halts all nonessential spending. It is the most severe step a council can take to admit that it cannot meet its obligations, and if the council were a private company, it would be placed into liquidation.

In a statement, the council’s leader, John Cotton, said: “Effectively, we have now issued a Section 114 notice, which means that all new spending, except for protecting vulnerable residents and keeping essential services going, will have to stop. This is a tough decision.”

But the mayor of the West Midlands, Conservative Andy Street, accused the Labour council of incompetence and alleged that the council was not doing enough to cut costs. He said the decision showed the need for a radical overhaul of how the local authority manages its budget.

Downing Street said the city council’s financial situation was “deeply concerning” in a separate statement. A spokesperson for the department said it had been engaging regularly with the council to discuss its funding concerns and had asked for assurances from its leader about how the council is managing its budget. The spokesperson added that it was up to locally elected councils to “manage their budgets.” “It is for them to decide how best to use taxpayers’ money,” he added. “I hope that they will be able to find a solution.”

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