The City Council’s formal declaration triggers a ban on moving forward with any new spending commitment now and a commitment to establish an emergency financial plan within the next 21 days
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Severe financial crisis for Birmingham, England’s second largest city in terms of population after London, together with Manchester, with almost 3 million inhabitants. The local government declared that it was no longer able to pay its debts and initiated proceedings for “de facto insolvency”. On paper, British local authorities are not allowed by law to go bankrupt like a company. For this reason, the city council, citing the so-called Section 114 of the law, has officially declared a state of financial crisis, which puts into effect the ban on proceeding now with any new spending commitments and a commitment to an emergency financial plan within the next 21 days to create. Local authorities have reported that all services that involve new costs, except for assistance to vulnerable people and legal advice, will be stopped immediately.
The debt amounts to £760 million
Birmingham’s government is listed by the BBC as the largest single city council in Europe and its current leadership is in the hands of the Labor Party, which is in opposition at the national level. The council’s chairman and deputy chairman, John Cotton and Sharon Thompson, admitted in a joint statement that it was impossible to cover, in particular, an amount of debt that, after the adjustments imposed by the commitments, reached 760 million pounds, almost 900 million euros, increase was carried out with a view to “equal pay” for municipal employees and contractors. The two defended themselves against the controversy by asserting, in their words, “the fiscal discipline” exercised in recent months “in the face of a perfect storm” characterized by the increase in spending needs, the “dramatic decline” in the budget imposed by the local economy, and – at a national level – the impact of “rapid inflation” and cuts in tax transfers to local authorities resulting from the policies of the Conservative central government in London. As a result of this situation, the Tory opposition on the council sparked a chorus of calls for the resignation of Labor administrators, accusing them of being “unable to deal with the situation adequately and in a timely manner”.
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The consequences
According to the BBC, Birmingham City Council leader John Cotton has already warned that local authorities will have to make “tough decisions”, pointing to a range of cuts that could impact roads, cultural projects and public spaces. The situation could also impact municipal financing of the 2026 European Athletics Championships, which will be held at the Alexander Stadium on the outskirts of the city.
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