Why UK's Second-Biggest City Birmingham Has Declared Itself Bankrupt
Just a couple of days before the UK¡¯s Prime Minister Rishi Sunak¡¯s expected visit to India for the G20 summit, the country¡¯s second biggest city has declared itself bankrupt.
Just a couple of days before the UK¡¯s Prime Minister Rishi Sunak¡¯s expected visit to India for the G20 summit, the country¡¯s second-biggest city has declared itself bankrupt.
Birmingham Declares Itself Bankrupt
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The Birmingham city council, which is the local government body of the U.K.¡¯s second-largest city, has effectively declared itself bankrupt because it doesn¡¯t have enough money to pay ?760 million ($955 million) in equal pay claims it owes to female government employees who were paid less than men in the past.
The council, which is Europe¡¯s largest local authority, issued a section 114 notice to cut all nonessential spending, declaring that it faces a deficit of ?87 million ($109 million) in the current financial year, as per Fortune report. Birmingham has also hosted the 2022 Commonwealth Games.
¡°The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,¡± the Birmingham City Council said in a statement.
¡°The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.¡±
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Why The City Is Paying Such A Huge Bill
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More than a decade ago in 2012, the Supreme Court ruled in favour of a group of mostly female employees who didn¡¯t receive bonus payments that were given to those occupying traditionally male-dominated roles at Birmingham¡¯s council.
Birmingham¡¯s council said in June that it had already paid ?1.1 billion ($1.4 billion) in equal pay claims over the last decade, but still had some remaining claims which it estimated would accrue at the rate of between ?5 million ($6.3 million) and ?14 million ($17.6 million) a month.
¡°This is one of the biggest challenges this council has ever faced, and we apologize for the failure to get this situation under control,¡± the council said at the time, adding that it was in talks with external auditors to find possible solutions.
Councils are typically funded through a combination of sources including central government grants, parking services, and taxes.
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Not The First City To Go Bankrupt
UK¡¯s second biggest city Birmingham joins other cash-strapped councils like Woking, Croydon, and Thurrock in declaring bankruptcy. While the council plans to shield the vulnerable sections of the population from the impact of this austerity measure, councils elsewhere have hiked taxes to shore up finances in the past.
The funding gap for local authorities in England and Wales is expected to climb to ?2 billion ($2.5 billion) or more in the 2023¨C2024 financial year, according to political organization Local Government Association.
As far as the US is concerned, cities including Atlantic City, Cleveland, Oakland, Richmond and many more have in the past gone bankrupt.
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What The UK Govt Is Saying
A spokesperson at UK PM Rishi Sunak¡¯s office said, ¡°It¡¯s for locally elected councils to manage their own budgets¡± but said the government was providing additional support worth ?5.1 billion ($6.4 billion) to councils this financial year, according to the Guardian. Sunak had previously ruled out the possibility of a bailout, blaming Birmingham¡¯s leaders for mismanaging funds.
¡°It will be concerning for the people of Birmingham,¡± Rishi Sunak¡¯s spokesman Max Blain said, as per Bloomberg.
The government had already provided extra funding for the council, at around 10% of its budget, but ¡°it¡¯s for locally elected councils to manage their own budgets,¡± Blain said.
The government was ¡°engaging¡± with the council about ¡°how they are able to focus on core services,¡± Blain added. Ministers also requested that it ordered an ¡°independent governance review.¡±
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