Is Birmingham Bankrupt?

On 5 September 2023, Birmingham City Council took an extremely serious step that led many people to ask ‘is Birmingham bankrupt?’ (In other words, is it unable to meet all financial obligations?) The UK’s largest local authority announced it was unlikely to fulfil its legal duty to balance its budget in the 2023/24 financial year and that 2024/25 would also be bleak. Plus, the recent publication of a report about Birmingham’s financial crisis by forensic accountants at The Audit Reform Lab, which is calling for an independent public inquiry, means the council is making headlines again.

Birmingham City Council’s eye-watering £87 million budget deficit will leave you in no doubt about how to answer the question ‘is Birmingham bankrupt?’ Other pressing questions include ‘why did Birmingham Council go bankrupt?’ and ‘how did Birmingham go bankrupt?’ Strictly speaking, only insolvent individuals can declare themselves bankrupt in the UK. Indeed, our licensed insolvency practitioners offer Birmingham bankruptcy advice to local people wanting a financial fresh start. But bankruptcy is a well-known term and widely used in news articles about the financial crisis, so it makes sense to talk about Birmingham City Council effectively being bankrupt.

As we’ll explain, the deficit isn’t the only reason for the council’s woes. In order to shed more light on its financial distress, we’ll answer the question ‘why did Birmingham Council go bankrupt?’ first, then ‘how did Birmingham go bankrupt?’ Because Irwin Insolvency helps numerous UK clients overcome insolvency issues and has close ties with Birmingham, we’re well placed to discuss the council’s troubles and their impact on the 1.1 million people reliant on its services, which span social care, housing, education and more.

Why Did Birmingham City Council Go Bankrupt?

The answer to the question ‘is Birmingham bankrupt?’ is clearly yes, so let’s drill down into the details. Why did Birmingham Council go bankrupt, and what is the scale of its financial distress?

The local authority essentially went bankrupt because, in addition to dealing with the £87 million deficit, it found certain costs spiralled wildly. Birmingham City Council received a £100 million bill for its IT system upgrade (the original estimate was £19 million), while teething trouble with the new software made keeping track of spending, transactions and forecasts harder. The council realised the cost of settling backdated equal pay claims had leapt from £120 million to £760 million. Furthermore, it owes over £2.9 billion to lenders, which means it has more debt than any other council.

And no answer to the question ‘why did Birmingham Council go bankrupt?’ could be complete without thinking about the financial landscape for councils in general. The Institute for Government has calculated that councils’ spending power fell by 21% between 2009/10 and 2021/22, largely due to reductions in government grants. With the population and demand for services growing, councils must achieve more with far less these days, so their financial resources are under great strain. Eight English councils, including Birmingham, have gone bankrupt since 2018.

How Did Birmingham City Council Go Bankrupt?

The question ‘how did Birmingham go bankrupt?’ invites us to examine the process by which Birmingham City Council effectively declared itself bankrupt. This involved the Chief Finance Officer issuing a section 114 notice (the term refers to part of the Local Government Finance Act 1988). This public declaration that expenditure was predicted to exceed available funds is the document that left people wondering ‘is Birmingham bankrupt?’ (The process is completely different to the Birmingham bankruptcy procedure for insolvent individuals, which involves applying online for a bankruptcy order from the Insolvency Service.)

The section 114 notice meant the council was obliged to hold an emergency meeting to discuss how to tackle the crisis, halt spending on non-essential services (examples include arts projects and youth activities) and avoid new spending commitments.

Birmingham City Council is now focused on increasing its income and reducing outgoings; tough decisions must be made. It aims to save £300 million in total in 2024/25 and 2025/26 – services including social care, road maintenance and waste collection, and everyone who relies on them, will very sadly feel the squeeze. The council is raising council tax by 21% in the same timeframe and intends to sell properties and other assets worth £750 million.

Birmingham Bankruptcy Advice from Local Experts

Now we’ve answered the question ‘how did Birmingham go bankrupt?’ it’s time to address your own financial position. If you’re facing bankruptcy in Birmingham, our insolvency practitioners are ready to help you. We provide specialist guidance, starting with a free, no-obligation consultation.

For expert advice about going bankrupt in Birmingham and other debt solutions, call Irwin Insolvency today on 0800 254 5122.