UK's second biggest city declares financial distress

The UK's second biggest city on Tuesday admitted that it cannot balance its books, blaming Conservative governments for years of under-funding.

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 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 created "a perfect storm", they added.

But Tory councillors on the council blamed Labour mismanagement of public finances.

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In June, the council revealed that it has to pay up to £760 million to settle historic equal pay claims.

Birmingham is home to some 1.1 million people.

Croydon Council in south London 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.

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.

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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."

Source: AFP