New 'rescue plan' being drawn up for broke Birmingham City Council

Birmingham City Council is drawing up an alternative finance plan that could save services and extend how long it has to balance its books, we can confirm today.

The plan is expected to be presented to Government for approval imminently, with encouraging signs of support from the top of the Labour Party. The news of an alternative recovery plan - understood to be based around an equal pay bill lower than first predicted and more leeway over the time it has to get its finances straight - was revealed to BirminghamLive by Local Government Secretary of State Jim McMahon, who was speaking at a Labour Party Conference fringe event in Liverpool.

Mr McMahon said: "There is a commitment from us (the Government) to say to Birmingham 'we are open to receiving your proposals. We are listening, if you can present a proposal that holds water, that will satisfy the HM Treasury'."

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Addressing the packed Labour fringe gathering (Monday September 23), Mr McMahon said: "The issues in Birmingham are serious, and the financial issues are significant and can’t be underestimated. But Birmingham's problem is all our problem." He said the new Government would not 'hang Birmingham out to dry' like the previous administration had, nor would its woes be 'paraded through Parliament'.

Instead it was working in 'genuine collaboration' with commissioners and the council leadership, led by John Cotton, to come up with a way forward that did not cripple the city. But he was clear the rescue plan would not involve a Government 'bailout' and that a reform of the way the council operated and delivered services was essential, whatever the outcome.

"What we have not said to the council is that we, the Government, have a proposal to extend the recovery period or give more money. But we have said to the council we are open to the council proposing an alternative. That is an important difference.

"The onus is on the council to say 'we are seeking to reschedule things - the cost of Oracle is now this, the equal pay liability is now this, can we reschedule the borrowing on that basis through capitalisation, which means we don't have to make the same cuts or asset sales'.

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"There are some really good conversations happening in Birmingham," he told the event, hosted by The Fabian Society and held at Liverpool's Maritime Museum as part of a schedule of fringe events around the party conference. He later confirmed he would be holding his next meeting with Birmingham leader Cllr John Cotton on Wednesday.

Cllr Cotton, currently at the Liverpool conference pressing Birmingham's case, said afterwards: "As the Minister has made clear, there are some good conversations happening and we’re working hard to find a more constructive way forward. That makes a refreshing change after 14 years of neglect and animosity.

"We now have a Government that both understands and values local government and in Jim McMahon and Angela Rayner (deputy prime minister and responsible for overseeing local government), we have ministers who treat council leaders as equals. I've always been clear that Birmingham faces a series of systemic issues and we won't shy away from taking tough decisions, but the challenges we face in Birmingham haven't happened in a vacuum.

"As Birmingham Live has laid bare, after over a decade of Tory austerity the city faces a child poverty crisis, which not only holds back thousands of young people and their families, but also puts huge pressure on the finances of the city council and other services that people rely on. The Minister is absolutely right that we need to reform public services and that's why the work to transform the council and get our finances back on track continues. I will not let up until we have the council Birmingham deserves."

The potential 'alternative plan' being drawn up is understood to have echoes of a recent report from academics at the Audit Reform Lab, based at Sheffield University, who urged a rethink of Birmingham's financial situation amid claims that the equal pay liability that triggered its meltdown was dramatically overstated and helped mask the extent of the problems with the council's Oracle IT implementation. Dr James Brackley, leading the Audit Reform Lab report, had said the original crisis had been 'overstated' due to 'ambiguity' and 'errors', especially around equal pay.

He praised the new development and said it suggested a 'positive' rethink of how to deal with Birmingham's predicament. Originally the equal pay bill was predicted to run to as much as £760 million, and that was the sum included by the council in its previous submission to the Government for exceptional financial support. Expectations now are that the eventual settlement will be much lower, likely less than £250m, giving the council scope to redraw its plans.

The end result could mean fewer assets sold off, fewer job losses, and more support for at-risk services, or a combination.

Mr McMahon had earlier told the event that every local authority would this year receive a one-off 'emergency funding settlement' designed to help them recover from the trauma of Conservative rule and help avert more bankruptcies. That would be followed next year by a multi-year settlement to assist councils in making realistic forward plans.

He said the government aimed to 'ensure money goes to the right places'. Mr McMahon, MP for Oldham West and Royton, knows Birmingham's new managing director Joanne Roney well from her previous role as chief executive of Manchester City Council. She is now in her second week in charge.

Together with commissioners, council leaders, regional mayor Richard Parker and Government colleagues, all would be working in collaboration to come up with solutions to Birrmingham's travails, he said.

Jim McMahon, Secretary of State for Local Government and Devolution
Jim McMahon, Secretary of State for Local Government and Devolution -Credit:Ian Vogler / Daily Mirror

His comments offer new hope for Brummies angry about proposed cuts to services totalling close to £400 million over the next two years. Cuts lined up so far affect the funding of adult social care, children's services and highway maintenance, though every service delivered has been put at risk. Bins will be collected fortnightly from next year, arts grants have been scrapped, and youth, library and day centre provision are all in the firing line. At least 600 jobs are also going. Council tax has gone up 9.99% this year and the same next year.

Mr McMahon said that some of Birmingham's financial woes were due to 'just the sheer scale of being the biggest council in the country and the biggest unitary council in Europe; what happens in Oldham, say, you times by five in Birmingham and you get a sense of the scale of the problem. Some of it is just very big numbers.'

But he added: "We have had to get under the skin of what's causing the underlying pressure. Some of it is due to the Oracle IT system which needs to be reviewed - the council has made progress with the commissioners at bringing in extra specialist support to underpin that, to rescope it and get ahead of that.

"Equal pay liabilities are a significant issue in Birmingham. Significant dates are coming up in terms of court cases that will determine the scale of the liability. Those are being worked through.

"We've met with the leader a number of times and with the mayor of the West Midlands to say 'what can we do together to get ahead of the problem and deal with those inherent demands on services'. That relationship is a good one.

"Genuinely the conversations taking place there are one of co-production and collaboration, which is a step change to where they were even a couple of months ago."

Jonathan Carr-West, chief executive of the Local Government Information Unit, at the same event, said Birmingham's 'bankruptcy' had made international headlines. "I spoke to American, French, German newspapers, all calling asking 'what on earth is going on, how can this happen', so the world is watching us." He said lessons could be learned from other nations about the way local government was financed.