The leader of Birmingham City Council has said “tough decisions” must be made to save the local authority as unions called for urgent talks to safeguard jobs.
Councillor John Cotton said that essential services would be protected after Europe’s largest local authority issued a section 114 notice on Tuesday, meaning it is effectively bankrupt.
All new spending will stop immediately with the exception of protecting vulnerable people and statutory services.
The Labour-led council said in June it faces an equal pay liability of between £650 million and £760 million, which is growing at between £5 million and £14 million a month and which is now estimated to be more than £1 billion.
It is also faces an in-year financial gap in its budget which currently stands in the region of £87 million.
Speaking to BBC Radio West Midlands, Mr Cotton said the council would “continue to deliver on essential services like children’s safeguarding and social care, social care for adults, education, waste collection, road maintenance and library services”.
The BBC said that Mr Cotton is not in the city due to “longstanding family commitments”, but that statutory services would continue for the city’s 1.1 million taxpayers.
Issues with equal pay settlements at the council have been ongoing for well over a decade.
In 2012, the Supreme Court ruled in favour of 174 low-paid women workers at the council to ensure they were paid equally, which effectively extended the time workers have to bring equal pay compensation claims from six months to six years.
That added to a number of previous equal pay settlements dating back to 2006.
It was estimated at the time that existing and future equal pay claims could cost up to around £750 million, which the council had to borrow hundreds of millions of pounds to settle.
The liability has since grown to the current level, with the council unable to pay the bill from existing reserves as its entire revenue budget for all services annually stands at around £750 million.
Meanwhile, talks remain ongoing to safeguard the jobs of thousands of staff at the authority, with Unite – which represents hundreds of workers at the organisation – claiming the council’s bankruptcy came as a result of “chronic financial mismanagement”.
Sharon Graham, Unite general secretary, said: “Birmingham City Council’s workers must not pay the price for the council’s or central government’s incompetence and financial mismanagement.
“Our members undertake vital frontline services that are essential for the communities they serve and they should not be impacted through no fault of their own.
“Unite always prioritises the jobs, pay and conditions of its members and will support those at Birmingham City Council to ensure they are not mistreated due to council and government failings.”
Lee Wiggetts-Clinton, the union’s regional officer, said: “Unite is seeking urgent meetings with the council to ensure that Birmingham’s loyal workforce are not made the scapegoats for the financial crisis, which is not of their making.”
Michelle McCrossen, an organiser at GMB, which has live equal pay claims ongoing against the council, said the authority had “brought Birmingham to the brink”.
She said: “Today’s announcement is a humiliating admission of failure on the part of Birmingham City Council’s officials and leadership.
“Not only are they responsible for creating this crisis through years of discriminating against their own staff, but even they no longer believe themselves capable of fixing it.
“For decades the council has stolen wages from its low-paid women workers, running up a huge equal pay liability that has brought Birmingham to the brink.
“Due to the reckless incompetence of council bosses, thousands of city employees will be worrying for the future of their jobs and of the essential services that they provide for the people of Birmingham.
“GMB will continue to fight for pay justice for our members, and to ensure those responsible for this crisis are held to account.”
It was announced in July that a judge-led inquiry would be launched to find what caused the equal pay bill and who was to blame for it, which is set to begin next year.
That will only begin after the conclusion of a separate governance review, announced at the same time.
This will focus on failures in the implementation of the council’s new IT system, Oracle ERP, which requires around £100 million to remedy.
Speaking in July, councillor Sharon Thompson, deputy leader of the council, said the equal pay liability was “one of the biggest challenges this council has ever faced”.
However, at a cabinet meeting on Tuesday, councillor Thompson said that the city “had £1 billion of funding taken away by successive Conservative governments” and said many other councils around the country were facing financial difficulties.
Jonathan Carr-West, chief executive of the Local Government Information Unit (LGIU), said the declaration was a “sobering moment” but warned several councils were being driven to “financial ruin” due to funding cuts.
He said: “To see the largest local authority in the country effectively declare bankruptcy is a sobering moment. Questions will no doubt be asked about decision-making and governance in Birmingham.
“But questions should also be asked about an inconsistent, fragmented and short-term funding system that is driving dozens of councils across the country to financial ruin.
“LGIU has been supporting councils for 40 years, but our members tell us that they are experiencing the most acute crisis they can remember.
“Not only has the amount of funding been slashed by [the] Government but councils have been made to rely on short-term, piecemeal funding that inhibits effective financial management.
“Central government has kept councils living from hand to mouth and from year to year for far too long.
“Birmingham is the biggest council to fail so far, but unless something changes, it won’t be the last.”
The announcement of the section 114 notice has led to heavy criticism from the council’s opposition groups and the Government, with Birmingham Liberal Democrats calling it a “failure of Titanic proportions”.
A Government source told the PA news agency: “Sadly this is another example of a Labour administration running out of other people’s money and a red alert warning for a Keir Starmer-led government.”
The Conservative Mayor of the West Midlands, Andy Street, said promises from the council to produce a plan for how to settle the liability had not been produced.
He said: “The city of Birmingham deserves so much better and, truthfully, I am incredibly concerned that citizens – and the services they rely on – have been let down in this way.”
Birmingham becomes the latest of several councils to issue section 114 notices this century, after Hackney, Northamptonshire, Croydon, Thurrock and Woking.