Academics and financial experts are calling for a public inquiry into Birmingham City Council’s 2023 declaration of effective bankruptcy, alleging the decision was based on “materially misstated” information.
In an open letter addressed to Local Government Secretary Steve Reed, the signatories contend that inaccuracies in projected reserves and equal pay liabilities led to the issuance of the Section 114 notice.
Council leader John Cotton responded by stating the authority is “on track to deliver a balanced budget without the need for exceptional financial support” this year.
The Ministry of Housing, Communities and Local Government (MHCLG) has indicated the decision to issue the notice was made at the local level.
Cotton asserted that the council has been collaborating with the government “to repair the damage of 14 years of crippling Tory cuts.”
The letter’s signatories, identified as specialists in accounting, finance, economic development, and local government, emphasize the “damaging” consequences the decision has had on residents.
They argue that lessons must be extracted from the situation to prevent similar occurrences in other local authorities.
“We call for a public inquiry to establish how and why such a damaging section 114 notice could have been initiated based on unaudited and, as has now come to light, materially incorrect accounting information,” the letter states.
Analysis supporting the letter, conducted by Dr. James Brackley of the University of Glasgow, contrasts the figures utilized at the time with those subsequently published in the council’s audited accounts.
Dr. Brackley’s analysis suggests the council’s general fund was positive by approximately £784 million at the time, rather than the initially reported £677 million deficit – an underestimation exceeding £1 billion.
He contends that this indicates Birmingham was “likely never bankrupt,” as its available funds were significantly underestimated and its equal pay liabilities overstated.
However, the council maintains that it faced an £87 million budget shortfall when the Section 114 notice was issued and had not yet secured government approval to cover equal pay liability through borrowing or asset sales.
According to the council, Carol Culley, executive director of finance, stated that most chief finance officers likely would have made the same decision based on the information available at the time.
Cotton stated: “Under my leadership this council has taken the tough decisions and decisive action required to return to the mainstream of local government.”
An MHCLG spokesperson said: “Birmingham City Council has made progress on its reform and recovery, but challenges remain, which is why commissioners continue to support the council to deliver for local people.”
BBC WM political reporter Kathryn Stanczyszyn noted that questions regarding the financial calculations behind Birmingham’s “bankruptcy” have been circulating for some time.
“A figure of £760m was originally placed on the prospect of equal pay settlements, a significant part of the reason for the emergency intervention and subsequent cuts,” she said.
“Now that deal has been done with female workers – but the council has not yet revealed what the bill will be.”
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