Birmingham council leader defends chosen route out of bankruptcy

The social fabric and sustenance of the UK’s second city are at stake as Birmingham faces some of the deepest cuts in local government history in an effort to recover from insolvency, the city council’s Labor leader has warned.

But John Cotton, who took over as Europe’s biggest local authority a year ago, dismissed growing concerns among fellow councilors that £300m of cuts to services and the sale of £750m of council assets imposed by Westminster were adopted on a false premise.

In September last year, Birmingham became the latest in a string of English councils to declare its inability to meet its legal responsibility to balance its budget, precipitating government intervention.

The local authority’s section 114 notice came after an overspend of nearly £100m on a new software operating system and after council officers adjusted their estimate of an equal historical payment liability from an earlier figure of £121m to up to £760m.

The higher figure was then adopted by external auditors Grant Thornton and included in a March budget. Instead, the government gave Birmingham exceptional permission to raise council tax by 21% over two years and use the £750m proceeds from asset sales to cover its forecast deficits and plan a equal pay settlement.

“Clearly we had to publicize the potential liability of equal pay when it came to light shortly after I became leader, and this figure is the figure until we clear up the inequities around the pay and grading system. We’re obviously working to eradicate them at the moment,” Cotton told the Financial Times.

Both Max Caller, the veteran fixer parachuted in to oversee the council’s rehabilitation, and unions representing the claimants admitted last week that the liability could actually be closer to £250m. Caller said the figure was adopted by auditors as a “worst-case” scenario.

But James Brackley, a lecturer in accountancy at Sheffield University’s audit reform lab, said in a letter to councilors last week that the liability should have been calculated on a “best estimate” rather than a worst-case basis , according to local government accounting standards. .

“If the statements of the Chief Commissioner (the appellant) in the FT are correct, then the authority appears to have recognized the equal pay duty on the wrong basis,” Brackley wrote.

The figure matters because of the scale of cuts Birmingham has had to plan for – including to frontline services such as adult and children’s social care, both of which are already under intense pressure from rising demand and rising costs.

One councillor, who asked not to be named, said the sale of income-generating assets in the interim would make the city even more dependent in the future on “the whims of Westminster” grants.

Cotton admitted the cuts would fall on services that have already been decimated since 2010, when central government grants were cut by a total of £1 billion and the council lost some of its vital social functions.

What “worries him most” about the council’s near-term financial future, Cotton said in an interview, was the potential impact of these further cuts on community networks, the city’s second-largest social infrastructure of Great Britain by population.

“The budget we voted for at the beginning of March was certainly not the kind of budget we came into politics for,” said Cotton, who was elected to the council in 1999 and previously held the social justice portfolio in his cabinet .

Birmingham, he added, was a tale of two cities and the future of the less visible was now the most at stake.

“A city is growing. It’s what you can see out the window. It’s the cranes in the sky. It’s the record levels of investment coming in and businesses voting with their feet and moving here,” he said in his office in the grand old town hall. “The challenge is how we use all of this. . . to address the disadvantages that still plague so many other parts of the city.”

The pressures there are acute: Birmingham is home to some of the most deprived neighborhoods in the UK. As a result of the concurrent cost of living and housing crises, the number of families in temporary housing in the city has doubled in three years to 1,018 a week. Referrals to children’s services have increased by 19% since 2018.

“We are doing this in the context of a wildfire spreading in local government finances,” Cotton said, acknowledging that the crisis facing his council was greatly exacerbated by his own mistakes.

Caller said the council’s two “huge blunders” — equal pay and the failed launch of the software in 2022 — compounded the need for reforms the city should have undertaken over time, but coming together now “has seemed awful all of a sudden.”

“You all wish you hadn’t ended up here. But they are a great authority with many resources. They will get away with it,” he said.

Birmingham is now working with unions after agreeing the terms of a job review scheme to resolve equal pay claims. They arose in part as a result of advantages given to trash men that women in equivalent roles did not get. The target for a deal is a year away – a “very tight time frame”, according to Cotton, but one that “is in everyone’s best interest to be met”.

A way out of the software fiasco, which left the council partially blind to many of its 2022 dates, was also on the way, he said.

But the £1.25 billion “exceptional financial support” the government gave the council was “a misnomer”.

“It’s not someone who shows up on the front door with a check. It’s permission to use the capital proceeds from the sale of our assets to offset pressures on revenue,” Cotton said, calling on Whitehall to find a better way to support the growing number of English councils in financial distress.

Although she admitted that the upcoming election was “extremely tough”, Cotton was buoyed by a recent event: Richard Parker’s narrow election victory in the race to become mayor of the West Midlands.

Parker, a qualified accountant who helped set up the combined authority in 2016, defeated Andy Street, the region’s long-term Tory mayor, by just 1,508 votes this month.

Cotton said with Parker at the helm, there was greater scope for a “joint agenda” to ensure the benefits of Birmingham city center regeneration were spread more evenly around the city. Relations with the street had turned sour.

Meanwhile, local government was “crying out for a fairer deal from Westminster”, Cotton said. If Labor maintained its roughly 20-point lead over the Tories and won this year’s expected general election, he said, councils could at least expect a “more collaborative approach” from central government.

“There are reasons for optimism. But we still have a few hard yards to go,” he said.