Volkswacht Bodensee - UK's second biggest city latest to declare financial distress

Birmingham City Council in central England said it had issued a Section 114 Notice under the Local Government Finance Act 1988, which blocks spending on all but essential services.

Leaders of the Labour-controlled council -- one of Europe's largest -- called the move "a necessary step" to get spending back on a stronger footing.

They said "long-standing issues", including the roll-out of a new computer system, had been compounded by cuts of £1 billion ($1.25 billion) by successive Conservative governments since they came to power in 2010.

"Rampant inflation", alongside increases in the cost of adult social care and reductions in business rates income had also combined to create "a perfect storm", they added.

As it stands, the council said there is an £87 million "in-year financial gap" in its £3.2 billion-a-year budget.

In June, the local authority revealed that it has to pay up to £760 million to settle historic equal pay claims but does not have the resources to do so.

Tory councillors in the city, which is home to some 1.1 million people, blamed Labour mismanagement of public finances for the crisis.

In London, Prime Minister Rishi Sunak's official spokesman said Birmingham had received a more than nine percent increase in additional funding from a pot of £5.1 billion for local councils this year.

The department for local government has been in contact with the council and requested "assurances... about the best use of taxpayers' money", he told reporters.

"The government recognises that there are pressures that both central and local government face," he added but indicated it was an issue for Birmingham's leaders to resolve.

- 'Nothing left' -

Birmingham's effective declaration of insolvency follows Croydon Council in south London which issued a Section 114 notice in November last year because of a £130 million black hole in its budget.

Thurrock Council in Essex, east of London, also declared itself in financial distress in December last year while Woking Borough Council, southwest of the capital, did the same in June.

SIGOMA, a grouping of 47 urban councils within the LGA, last week warned that one in 10 of its members were considered making the statutory admission that they have no prospect of balancing their books.

Nearly 20 percent said they could do the same in the next year.

High inflation, rising energy costs and wage demands have exacerbated government funding cuts to essential services, it said.

Councillors have to meet within 21 days of a Section 114 notice being issued and produce a budget that makes necessary cuts to reduce spending.

SIGOMA chairman Stephen Houghton said: "The government needs to recognise the significant inflationary pressures that local authorities have had to deal with in the last 12 months."

He added: "The funding system is completely broken. Councils have worked miracles for the past 13 years, but there is nothing left."

F.Müller--BTB