The Truth Behind Birmingham's Bankruptcy

Birmingham City Council, which declared itself effectively bankrupt in September 2022, is now revealing the complexities behind its financial collapse. A combination of significant missteps, including a flawed IT system rollout, an exaggerated equal pay liability, and a burdensome financial package from the previous Conservative government, has led to unprecedented cuts and asset sales for the local authority. The situation escalated when Michael Gove, the then Secretary of State for Levelling Up, Housing and Communities, informed Parliament that independent auditors estimated the equal pay liability to be at least £760 million, a figure the council could not meet. However, external auditors have since indicated that they did not verify this £760 million equal pay figure, which has become central to the council's bankruptcy narrative. Reports suggest that this liability may have been overstated, and auditors lacked access to the underlying model used to calculate it. Consequently, the council is now selling assets at significant losses to address a liability that may not be as severe as initially thought, while the financial plan fails to tackle the council's growing deficits. The current strategy, devised by Gove's department, has resulted in drastic asset sales based on a misdiagnosis of the council's financial health, leaving the council with a projected £195 million shortfall for the upcoming year. Experts believe that a more accurate assessment of the council's issues could have mitigated asset sales by up to £500 million. Without a viable alternative, Birmingham risks facing another local government scandal in the near future.