The timing could not have been worse for John Cotton. He had just arrived in New York with his family to celebrate his 50th birthday. His daughter, Rose, had begged him to take the trip: it had been two years in the making, she told him, and he deserved a break.
Under mounting pressure at work — from the infighting, the relentless hours, the blame games — Cotton relented and decided to go.
On September 5, less than 24 hours after he had touched down in New York, the news broke worldwide in publications from CNN to Le Monde: “Birmingham city council goes bankrupt.”
The council, the largest local authority in Europe, serving more than a million people, was unable to meet its spending obligations. And Cotton was its leader.
His daughter later conceded it was “not a good look” for her father to have been absent from the cabinet meeting the morning it all came out. Instead, Cotton gave an interview via videolink to BBC West Midlands, taking care to obscure the background.
It was left to his deputy to address the councillors. Days later, Cotton left New York to deal with the hangover of Birmingham’s financial excesses.
Road to ruin
Dozens of English local authorities have declared effective bankruptcy in recent months, incapacitated by inflation, an explosion in demand for social services and what some say is a broken financial model.
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Even among them, Birmingham is conspicuous in its failure. It needs to find the largest budget cut in local authority history, shaving off £300 million in two years, while its residents endure an unprecedented 21 per cent council tax increase.
Last week, on what Andy Street, the mayor of the West Midlands, described as a “dark day that sets the city back”, the local authority announced what these cuts would look like. Street lights will be dimmed. A “rats’ tax” — a £24 pest-control charge — will be introduced. Bins will be collected only once a fortnight.
Yet even more money is needed: the council has asked the government for a £1.25 billion loan. The city’s own accountancy firm described the crisis as “one of the most significant challenges that any council in England has ever faced”.
Finding the answer to how this happened is not easy. Jane Haynes, the political editor of the Birmingham Mail, who has been covering the slow-motion car crash for years, wrote of her protracted “quest to make sense of how this proud city council, proclaimed as the biggest and boldest in the country, has ended up on its knees”.
She wrote: “An apparently unforeseen equal pay bill of up to £760 million has been the trigger, but the factors behind it run deep, some years in the making. What did officers know, what did councillors know, and who was asking the tough questions?”
The catalyst was a Supreme Court ruling in 2012. Dozens of female cooks, cleaners and care workers employed by Birmingham believed they had been unfairly paid compared with men in similar roles. They lodged a group-action claim against the council.
Chris Benson, one of their lawyers, said at the time: “We think the claim for the first 174 claimants is worth around £2 million. Obviously there’s about another 1,000 people that have contacted us, so that’s probably another £10 million.” He added there “could be tens of millions” in claims. While equal claims have been brought in at least 20 other councils, Birmingham has been hit hard because of its size and its handling of the problem.
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The eventual cost was £1.2 billion. In the ensuing years, the council, Labour-controlled since May 2012, sold assets, cut services and found any money it could to pay the bill. The River, a fountain sculpture in Victoria Square, was switched off because the water bill was too expensive, and Birmingham sold its stake in the National Exhibition Centre, its most prized property asset.
Six years later, the bulk of the claims were settled. Crucially, however, the local government failed to reassess the job roles of its employees to make sure they were consistent with the Equality Act. This left them wide open to the risk of further workers suing for discrimination.
Warning over pay deal
In summer 2017, Birmingham’s refuse workers were on strike and its streets were blighted by maggots, rats and piles of rubbish larger than cars. The council leader was John Clancy, a former teacher and lecturer who had not previously run so much as a backbench committee. He wanted to streamline bin collections but the collectors refused to countenance job losses or pay cuts.
Clancy attempted to strike a deal with them but Stella Manzie, the council’s acting chief executive, warned that his deal was potentially illegal and “endanger[ed] the council’s equal pay strategy and the council’s budget”. He was warned it could prompt pay claims under the Equality Act from unions representing workers in other parts of the council. Nevertheless, he pushed ahead.
The two-month bin strike came to an end but the deal collapsed. The Unite union blamed council officers. Clancy blamed the unions. Leaked emails then verified the legal advice he had ignored and his attempt to force through a deal. He resigned in September 2017, hours before a confidence vote. He defended his actions, insisting he was trying “to negotiate an end to an extremely complex and difficult industrial dispute” and had acted with “the best of intentions’’.
After weeks of strike votes and bureaucracy, Ian Ward was elected the council’s new leader. He said he wanted to avoid the case going to court and implemented a new deal eerily similar to Clancy’s.
The Commonwealth Games
On the other side of the world in South Africa, the city of Durban was facing mounting financial problems. When it was stripped of its right to host the 2022 Commonwealth Games, Ward decided Birmingham should step in, ignoring warnings that doing so risked bankrupting the city. Birmingham won replacement host status in 2017. The tournament eventually cost the council and its partners £184 million.
The following year, Grant Thornton, the council’s financial auditor, sounded the alarm. There was just £72 million left in reserves — equivalent to 8½ days’ spending. Birmingham had “masked” its weak finances by draining its savings. Now it faced financial ruin.
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Two years later came the pandemic. Social-distancing rules meant bin collectors were allowed to go home when their rounds finished, instead of mingling on shift at depots, but they were still getting paid in full. This “task and finish” arrangement was covered by the emergency powers granted to local authorities during the pandemic.
Birmingham’s Conservatives sought assurances about whether the city risked more equal pay claims. “We were told as long as task and finish ended by [2022], it would be OK,” said Robert Alden, leader of the council’s Tory grouping.
Yet the practice continued with the council’s full knowledge, as a Birmingham Mail investigation revealed last year. Alden said this was “gross negligence’, adding that “it would … be impossible for the administration to claim they didn’t know the task and finish [arrangement] was happening”.
Doomed IT project
In 2019, Becky Hellard joined Birmingham as interim director for finance and governance. About a year later, the council decided to implement a software system, Oracle, for £20 million. It hoped to replace burdensome, manual processes with automation and analytics. But instead of adapting working practices to suit Oracle, staff requested software changes to suit their practices.
This resulted in calamity and then farce. Bills automatically paid by the council in the public sector went unpaid. Bailiffs began threatening schools. A lease firm tried to seize school minibuses after payments were lost. The system also means administrators cannot work out how much isleft in the bank.
Peter Sebastian, the council’s head of financial planning, said a further £45 million would be needed to fix Oracle on top of the £85 million already spent, according to Computer Weekly.
“Oracle is such a disaster that from the original cost of £20 million it is expected to run to over £100 million, with no end in sight,” said Paul Tilsley, finance spokesman for Birmingham Liberal Democrats and council leader until 2012. “It still does not produce reliable financial information.”
Yet Birmingham kept spending. It also successfully bid to host the 2026 European Athletics Championships, which councillors say is part of a drive for “a golden decade of opportunity”.
The ‘illegal’ budget
At 7pm on Friday, February 3, last year, Darren Hockaday, the council’s HR director, pressed “send” on an email. The following Monday, the recipients met in the leader’s office in Council House. They included Ward, Brigid Jones, his deputy, and Cotton, who was soon to take over as leader. The officers present were Deborah Cadman, the chief executive, Becky Hellard, who has since resigned, and Janie Berry, the city solicitor, who has since left by mutual consent.
Hockaday revealed that the council was liable for further equal-pay claims of between £300 million and £800 million. Task-and-finish work practices were still rife, largely in the refuse service. Without urgent action, he said, the equal-pay bill would rise by millions every month.
Yet when councillors convened on February 28 last year to vote on the budget on behalf of their constituents, most believed there was zero risk of discrimination payouts. It is not clear why — a potential bill of as much as £800 million is quite a big thing to miss. “The fact that that information was known by those councillors and they chose not to share it with the rest of the council in advance of the budget is very concerning,” said Alden.
Local authorities are legally obliged to set a balanced budget, one that takes into account all potential costs and liabilities, which is why people such as Tilsley believe “the budget that we approved in February 2023 was an illegal budget”.
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A council spokeswoman said: “There were a variety of estimates of liability, which were wide-ranging and clearly needed further work. Further detailed analysis was requested and subsequently the findings were shared with the public and all members of the council.
“Since then the council has worked tirelessly with trade unions and the commissioners to agree a job-evaluation scheme that will help to end the equal-pay liability once and for all.”
The money runs out
The Labour Party decided to remove Ward as leader and Sir Keir Starmer installed Cotton in May. In Council House, another war of blame had erupted, this time between the councillors and executives. The council was exploring possible legal action against Hellard amid “the growing debate over whether the budget was legal”, the Municipal Journal reported in October.
In June, residents were told that the council’s equal-pay liabilities amounted to between £650 million and £760 million.
By September, it was clear the coffers had run dry. Fiona Greenway, the interim finance director, issued the legal notice that acknowledged the council had to halt all non-essential spending. A spokesman was stark: “The council is still in a position where it must fund the equal-pay liability … but it does not have the resources to do so.”
In the months that followed, central government installed a team of commissioners to oversee brutal spending cuts and ordered a judge-led inquiry into equal pay.
In Victoria Square, teenagers stood in the pouring rain to protest against cuts to youth services. More than 10,000 council employees were offered voluntary redundancy. Eleven community centres face the axe. The social housing backlog is so great that the council is mulling its closure.
The Labour administration has yet to finalise the evaluation of jobs and wages to mitigate the risk of yet more equal-pay claims. This will be doneat the earliest by spring 2025. In the meantime, the liability grows at about £14 million per month. It now stands at more than £800 million.
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Cotton spoke on behalf of the council last week when he apologised to residents for the brutality of the new budget. “The level of savings contained in these proposals are unprecedented,” he said. “We have no alternatives but to face these challenges head-on. We will do absolutely whatever is necessary to put this council back on a stable and sound financial footing.”
