ICAEW.com works better with JavaScript enabled.

Birmingham issues Section 114 notice amid financial crisis

Author: ICAEW Insights

Published: 07 Sep 2023

Birmingham City Council issues Section 114 notice due to £87m budget gap and significant equal pay liability, halting non-statutory spending.

Birmingham City Council, the governing body of the UK’s second-largest city, has issued a Section 114 notice, signalling a severe financial crisis. The council is grappling with an £87m budget shortfall for the current year and a staggering equal pay liability amounting to £760m.

The Section 114 notice, a statutory measure, has been enacted as the council acknowledges its inability to meet its ongoing financial obligations. This action effectively halts all non-essential spending, highlighting the gravity of the situation.

Alison Ring, Director for Public Sector and Taxation at ICAEW, commented: “We are likely to see more councils issuing s114 notices due to the increasing financial pressures they are facing. It is important to note that Birmingham City Council’s financial problems are not caused by speculative investments, as has been seen in other cases.

“ICAEW supports greater investment in local authority finance teams to successfully manage public sector expenditure, to mitigate the likelihood of councils running into financial difficulties in the future.”

Several factors have contributed to Birmingham City Council’s financial woes. These include significant costs associated with the troubled implementation of its Oracle IT system, amounting to £100m.

Additionally, the city has incurred expenses related to hosting the 2022 Commonwealth Games, which have reached £184m. The most substantial burden, however, is the outstanding equal pay liability, estimated to be between £650m and £760m, in addition to the £1.1bn already disbursed.

Fiona Greenway, the interim Director of Finance, has confirmed that the council lacks the necessary resources to cover the mounting equal pay costs and has no viable means of doing so.

Birmingham had already implemented spending controls in July, shortly after discovering the latest equal pay liability. This liability stems from a 2012 Supreme Court ruling that found female staff had been unjustly denied bonuses awarded to their male counterparts. Notably, the equal pay liability is increasing at a rate of £5m to £14m each month.

A spokesperson for the council stated: “The council will tighten the spend controls already in place and put them in the hands of the Section 151 officer to ensure there is complete grip.

“The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.”

A committee will soon be told that out of the £65m in required savings for the fiscal year 2023/24, £33m are deemed “high risk”, £29m “medium risk”, and only £3m are classified as “low risk” in terms of achievement. The financial challenges faced by Birmingham City Council underscore the urgency of addressing these issues to safeguard essential services and the city’s fiscal stability.

Join the Public Sector Community

For accountants and finance professionals working in and advising the public sector, this Community is the go-to for the key resources and guidance on the issues affecting practitioners like you. With a range of dynamic services, we provide valuable tools, resources and support tailored specifically to your sector.

Public Sector polaroid

Discover more from ICAEW Insights

Insights showcases news, opinion, analysis, interviews and features on the profession with a focus on the key issues affecting accountancy and the world of business.

Podcasts
Accountancy Insights Podcast
Accountancy Insights Podcast

Hear a panel of guests dissect the latest headlines and provide expert analysis on the top stories from across the world of business, finance and accountancy.

Find out more
Daily summaries
Three yellow pins planted into a surface in a row
News in brief

Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.

See more
Newsletter
A megaphone
Stay up to date

You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.

Sign up
Open AddCPD icon

Add Verified CPD Activity

Introducing AddCPD, a new way to record your CPD activities!

Log in to start using the AddCPD tool. Available only to ICAEW members.

Add this page to your CPD activity

Step 1 of 3
Download recorded
Download not recorded

Please download the related document if you wish to add this activity to your record

What time are you claiming for this activity?
Mandatory fields

Add this page to your CPD activity

Step 2 of 3
Mandatory field

Add activity to my record

Step 3 of 3
Mandatory field

Activity added

An error has occurred
Please try again

If the problem persists please contact our helpline on +44 (0)1908 248 250