Michael Gove has announced commissioners will take over Birmingham City Council as part of a series of emergency measures for the bankrupt authority likely to include selling assets, cuts to staff and an increase in council tax.
The intervention will also see an inquiry launched, said the government’s housing secretary as he told the Commons on Tuesday he was “satisfied that Birmingham City Council is failing to comply with its best value duty”.
The country’s largest authority - which issued a Section 114 notice meaning it is unable to meet its financial liabilities - has blamed £760m of equal pay claims, the expenses of a new IT system, and funding cuts by successive Tory governments.
The authority has a budget shortfall of £87m – projected to rise to £165m in 2024/25. Among its assets now at risk of being sold are the city’s Central Library, Birmingham Museum and a stake in Birmingham airport.
Announcing his plans, Mr Gove told MPs: “I do not take these decisions lightly, but it is imperative in order to protect the interests of the residents and taxpayers of Birmingham, and to provide ongoing assurance to the whole local government sector.”
Mr Gove warned that it has “sadly” been the case during similar interventions in the past that the government has needed “to increase council tax in certain circumstances”.
Earlier on Tuesday, the council warned – in a report outlining its proposed financial recovery plan, ahead of an extraordinary meeting next week – that it faces an urgent “redesign” likely to require asset sales, cuts to staffing levels and an increase in local taxes.
Issued on behalf of council chief executive Deborah Cadman, the document said the council “acknowledges that the current situation will create uncertainty, and in some cases disruption, and unreservedly apologises”.
Claiming that “the residents and businesses in Birmingham deserve better”, Mr Gove told MPs that, under his proposals, the commissioners will exercise all functions associated with the council’s governance, strategic decision-making, financial governance, and senior appointments.
Mr Gove said they will have the power to make decisions directly if needed, adding he is “minded” to implement the package he has set out and that the city council has five working days to make representations.
If his plans go ahead, the council would also – under the oversight of commissioners – draw up and agree upon an improvement plan within six months, Mr Gove said.
That plan would set out how the council will “make the necessary improvements to the whole council to return it to a sustainable financial footing”, he added.
Mr Gove said the local inquiry will “consider the more fundamental questions around how Birmingham got to this position and options for how it can become a sustainable council moving forward that secures best value for its residents”.
But his opposite number, deputy Labour leader Angela Rayner, said the string of councils declaring bankruptcy in recent years had been “caused by the Conservative’s wrecking ball” – pointing to the fact that only one council had issued a section 114 notice prior to 2010, with eight doing so since.
“Local authorities across the country are struggling,” the shadow communities secretary told the Commons. “After 13 years he can’t seriously say that it is all their own fault.”
Pointing to warnings that a further 26 councils are at risk of bankruptcy, Ms Rayner added: “What work his department is doing to support local authorities that are warning of financial distress now?
“The truth is, this crisis in local government has been caused by the Conservative’s wrecking ball, with every swing another local council is pushed to the brink, and another local community falls over the edge.”
But Mr Gove hit back that “this intervention in Birmingham, like our intervention in Sandwell, like our intervention in Liverpool, have all been interventions in Labour-led local authorities that have comprehensive mismanagement extending back over years”.
While he warned that “council taxpayers elsewhere in the West Midlands must not be on the hook for failures that occurred in Birmingham”, Mr Gove said the government is “prepared to extend additional financial support to the city”.
Responding to Mr Gove’s statement, Local Government Association chair Shaun Davies warned that English councils faced a funding gap, “at the very least”, of nearly £3bn over the next two years.
“None are immune to the risk of running into financial difficulty and others have already warned of being close to also having to issue Section 114 notices themselves,” he said.
“Councils’ ability to mitigate these stark pressures are being continuously hampered by one-year funding settlements, one-off funding pots and uncertainty.
“The government needs to come up with a long-term plan to manage this crisis which must include greater funding certainty for councils through multi-year settlements and more clarity on financial reform.”
Additional reporting by PA