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Courts play ping pong with Birmingham council’s ‘ticking timebomb’

Courts play ping pong with Birmingham council’s ‘ticking timebomb’

🕔10.Jan 2012

Concerns are growing about the scale of a huge equal pay compensation bill facing Birmingham City Council, with external auditors insisting the matter is so serious it can only be discussed behind closed doors.

District Auditor Mark Stocks said he could only brief councillors privately about the consequences of a test case involving 174 women who used to work for the council as cooks, cleaners and caterers.

The women recently persuaded the Court of Appeal to allow their compensation demands against the council to be heard in the High Court – raising the possibility of a back-pay bill running into several million pounds.

The council is already staring at financial nightmare over the equal pay issue and has set aside £300 million to compensate women who for years were denied hefty bonuses paid to male workers, thanks to union deals that rewarded male manual workers with guaranteed bonuses for doing little more than turning up to work.

But the Appeal Court ruling takes matters a giant step forward by breaking with English legal tradition which has always seen equal pay claims contested at employment tribunal

The council has asked the supreme court for permission to appeal against the ruling, but if that proves unsuccessful and the 174 women win their High Court case, the floodgates for compensation demands from former employees could open.

The city could face a compensation bill that some legal experts believe will be far in excess of £300 million and may even approach the £1 billion mark. Such a figure might require some kind of Government rescue package to keep the council afloat.

Mr Stocks, addressing the council Audit Committee, said: “I am happy to have a private session on equal pay, but I am not prepared to say anything in public because I don’t think it is helpful to the people of Birmingham.”
Mr Stocks is yet to sign off the council’s 201-11 accounts as an accurate record after uncovering “materially misstated financial statements” and “inadequate working papers.

Having been trawling through the £3.5 billion of accounts since the end of June, and even moving in to work alongside council finance officials in an attempt to get to get through the paperwork, Mr Stocks has concluded that he will not be in a position to give a green light until the end of January at the earliest.

Two years ago, Mr Stocks issued similar dire warnings and eventually signed off the council’s accounts with a qualified opinion – accountancy speak for ‘there are aspects here I can’t agree with’. It was the first time in the council’s history that a qualified opinion had been handed down, and marked a highly embarrassing moment for Birmingham’s Conservative-Liberal Democrat coalition.

A shake-up of the finance department was promised then, but this did not enable the 2010-11 audit to take place without hitches. To complicate the process further, the council had for the first time to comply with International Financial Reporting Standards (IFRS) which introduce the same higher level of compliance applicable to FTSE-100 companies.

Mr Stocks discovered that the city’s computer systems, which are supposed to have been transformed, were not configured to cope with IFRS. “This proved more complex than anyone foresaw”, he told the Audit Committee.
However, a council press release on Mr Stocks’s 32-page audit letter insisted: “The letter concludes that the council manages its finances well and continues to drive service improvement despite receiving less money from the Government as part of the national deficit reduction plan.”

The press release went on to quote council leader Mike Whitby: “I am encouraged by the findings contained within this year’s annual audit letter – it is an important, independent document which accurately summarises the council’s progress over the last year.”

Cabinet finance member, Randal Brew, told the Audit Committee he accepted all of the criticisms levelled by Mr Stocks. Coun Brew (Con Northfield) added: “Having worked as an auditor for 40 years, these are statements I am not comfortable with. We have been down an extremely difficult road and I wouldn’t seek to persuade Mr Stocks to change these statements. They are uncomfortable but valid statements.”

When quizzed by councillors, Mr Stocks sought to moderate his report by insisting that the audit letter generally represented good news in that the council was delivering required spending cuts and using borrowing to improve public services.

The city’s borrowing will peak at £2.5 billion in 2012, although that is still below the maximum allowed by the Government. However, repaying money already borrowed is beginning to eat into council finances. By 2013-14, more than a quarter of the revenue budget – some £268 million – will have to be used to repay debt for projects like the new library and the housing renovation scheme.

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