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Equal Pay Bill worth £760m Birmingham city council, which prompted it to effectively declare bankruptcy and make a series of drastic budget cuts, may be greatly overstated, councilors, researchers and whistleblowers said.
Sources at the Labour-led council said the local authority’s finances were in disarray as a result of a botched IT system implementation and without accurate accounts for the past two years there was no way of knowing exactly how the council’s budget had built up.
There is growing concern that major budget cuts, asset sales and a 10% council tax increase have been made too hastily before the council has fully come to grips with the current state of its finances.
“I think the £760m figure is a figment of someone’s imagination,” said Paul Tilsley, a Liberal Democrat councillor. “If you look at the estimated claimants, the numbers are just inconsistent, it defies the financial imagination.
“And this figure is ruining this city. We’re going to see the real core infrastructure of the city, things like libraries, closed and sold off, and when they’re gone, they can’t be replicated. I see the heart ripped out of my city.
Birmingham City Council, the largest local authority in the country, representing over 1 million people, issued a Section 114 notice effectively declaring bankruptcy in Septemberciting an equal pay liability of around £760m and a bill of £100m to fix a botched IT system upgrade.
This caused the counselors to miss out the biggest local government budget cuts in history last month, as well as a 21% increase in municipal tax over two years. Questions are now being asked about the basis on which these cuts were made.
Max Kaler, the chief commissioner chosen by the government to get the council back on track, told a meeting that the current equal pay figure would eventually be replaced by a “real number” and “that’s the only time it’s worth it to worry about’. .
Fred Grindrod, a Labor councilor and chairman of the council’s audit committee, said there remained “serious questions” about the figure and the suggestion that it might not be real was a “mind-boggling situation to be in”.
External auditors are in the process of reviewing equal pay but have not yet reported their findings. Sources at the union, which is campaigning for equal pay for female council staff, also said they had no idea where the £760m liability figure came from or how it was calculated. It can be underestimated or overestimated, they said.
James Brackley, a lecturer in accountancy at the University of Sheffield, has spent months poring over council documents and audit reports to piece together the clues that led to Birmingham’s financial meltdown.
his work, through the University’s Audit Reform Labfound the failed Oracle IT system to be the council’s biggest financial problem and its budget deficits “have little to do with the issue of equal pay”.
“Of course, there is no logical reason to trigger a Section 114 bankruptcy because of a number that is so speculative and relates to liability so far into the future. It’s a very strange thing,” Brackley said. “[The £760m figure] it has not yet been audited and we do not yet have disclosures on how it was calculated.”
Reports from external auditors up to March 2023, three months before the £760m liability was announced, did not raise serious concerns about the council’s handling of the situation.
Brackley said his research suggested that service cuts and asset sales were being done too quickly and with little guarantee they would provide good value for money in the long term.
He added: “It’s created chaos because they’re just cutting things and they haven’t done a value for money assessment so they don’t know where that leaves them.”
Staff also raised concerns about the extent of the council’s IT collapse following the installation of a new Oracle system – the council’s first major IT upgrade since 1999 – which caused the council to lose control of its financial reporting system.
Councilors said the problems arose after staff tried to change and customize the Oracle system to fit older council processes, rather than installing the system as it came.
Tilsley said: “It’s so bad that if I asked our CFO, ‘How much money do we have in the bank today?’, nobody would be able to tell me. We have lost complete control over financial management.
He added that although the council had been “ill-served by a number of senior officers”, he was not “letting the Labor administration off the hook” for losing control of the situation.
One whistleblower in the council’s IT department said that when the new system was first rolled out in 2022, “nothing worked but the payroll” and the council could not track its income and expenditure.
For around seven months, the council also failed to collect council tax and business rates debt because the system could not show who had paid and who had not, they said.
“There was no financial reporting. How did we know what was in the budgets, what money was collected, what money was spent? We couldn’t,” the whistleblower said.
“Imagine you got an income for 30,000 things and you’re trying to figure out who the hell gave it to you and who you spent it on. That’s what we’re talking about.”
They said that although the system has improved, there are still unidentified revenues and problems with the accounting process.
“You need to know all this information to set a budget. Do I believe that this budget they have set is correct? Well, they don’t even know the equal pay obligation. So I’m not sure,” they said.
“Oracle is worth £110m and it’s still defunct. I think we’re still at least two years away from fully resolving it. Honestly, I believe the equal pay stuff is really covering up this Oracle mess.
Grindrod said the problems with the IT system were “untrue”.
“This is not a stable place for any organization and it is absolutely not a position where a council which provides essential services to 1.2 million residents, supports communities over 102 square miles and is the backbone of the country’s second largest city it should be in,” he said.
Internal investigations are ongoing to establish what went wrong at the council, and leader John Cotton has called for a public inquiry.
A Birmingham City Council spokesman said: “At the start of 2023 there were various estimates of equal pay obligations which were wide-ranging and clearly needed further work. Further detailed analysis was requested and the findings were subsequently shared with the public and all members of this council.
“Since then, the council has worked tirelessly with unions and commissioners to agree a performance appraisal scheme that will help end the equal pay obligation once and for all.
“The budget for the next two years was approved by the full council in March. We must now focus on how to spend what we have in the most effective way and we are committed to getting the basics right across a range of service areas.”
A spokesman for the Department for Upgrading, Housing and Communities said: “Birmingham City Council is facing this financial situation following its failure to tackle the significant issues it faces and years of gross mismanagement. That’s why commissioners were appointed in October 2023 to protect the city’s residents and taxpayers.
“Commissioners have the full support of the Secretary of State in taking all the necessary steps to move forward with the necessary improvements.”
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