According to estimates by the District Auditor, Britain’s largest local authority must find £757 million to compensate former female members of staff who were not paid at the same rate as men carrying out similar work.
There is little option for the council but to borrow the money, which means that £75 million a year is already being spent on equal pay debt and interest repayments – money that would otherwise be used to shore up essential services.
But that figure is likely to rise as a direct result of the recent Supreme Court decision in the case of Abdulla and others, which opened the way for scores of office cleaners, cooks, care workers and other low-paid council employees to have their claims dealt with by the High Court rather than at an employment tribunal.
The decision is significant because it enables for the first time equal pay claims to be brought up to six years after the claimant has left the council’s employment. In other words, the financial floodgates have been opened even wider than was already the case.
Sir Albert Bore, the leader of Birmingham City Council since May this year, said the £757 million bill placed the local authority in a “horrendous” position. He expects the total to rise as further back-pay claims are lodged, but refuses to make a prediction about the final cost. Legal experts have suggested a figure in excess of £1 billion.
Even for Birmingham, an authority that routinely deals with very large sums of money, the impact of the equal pay time-bomb is hugely significant.
The £757 million figure must be seen in the context of £600 million in Government spending cuts imposed on the council between 2011-12 and 2016-17. Without the pay bill and the cuts, the council would therefore have had £1.3 billion more to spend on services during that period.
The cost of council borrowing is at an all-time high, with total debt of £2.8 billion, although this is masked slightly by Government changes to the way the Housing Revenue Account is funded.
Nevertheless, when the equal pay bill is also taken into account, the council will be spending almost £300 million a year simply on repaying debt and interest, which is just over a quarter of the revenue budget.
Unsurprisingly, the District Auditor felt the need to issue a “qualification” to the 2011-12 accounts on the basis of the “increasing impact of equal pay claims”. On the plus side, though, he praised the council’s “financial resilience, economy, efficiency and effectiveness”.
At the moment the council has Government approval to borrow £430 million to meet equal pay compensation, leaving a further £328 million to be found.
Sir Albert has asked for further borrowing approval to meet the entire cost of equal pay, but it remains far from clear whether the entire sum can be funded in this way. Birmingham is by no means the only large council pleading to Ministers for special help, and the request for additional borrowing comes at a time when the Government is apparently intent on bearing down on the national debt. If the entire £328 million is not covered off by borrowing there is only one place it can come from, the budget for essential services.
As things stand, the council’s Labour leadership knows it has to find £75 million a year to finance equal pay debt. Any large increase in council tax has been ruled out, it would in fact take a 30 per cent increase to produce £75 million, and such a proposal would have to be approved by a city-wide referendum.
Sir Albert warned: “It is clear that the council is looking at some very difficult decisions in terms of its revenue budget. We are talking about equal pay claims already registered but we know there are others in the pipeline that haven’t yet been settled.”
He pointed out that by 2016-17, at the end of Chancellor George Osborne’s first phase of austerity cuts, Birmingham City Council will have lost half of its discretionary budget. That is, half of the budget that the council has direct control of.
He added: “We have to deal with this problem by making cuts in services. We will have to start decommissioning services.”
In essence, the council has been hit by a three-way toxic cocktail of events.
First, in 1999, the trade unions and Government agreed the Single Status initiative which was designed to make good the shortcomings of the Equal Pay Act. Second, the virulent activities of no-win no-fee lawyers who have been touring the country persuading low-paid council staff to fight for compensation. Third, the toughest public spending cuts in local government history.
There is a fourth element, too, and that is the ever-changing legal interpretation of equal pay which has resulted in the courts consistently changing tack in favour of complainants.
As Birmingham City Council chief executive Stephen Hughes put it: “Employment tribunals and the courts have changed their opinion around the law over this period of time always in one direction which has added significantly to the amount of claims we have had and the cost of them.”