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Birmingham City Council in £600 million budget crisis

Birmingham City Council in £600 million budget crisis

🕔23.Oct 2012
Victoria Square, Birmingham at dusk, showing t...

A wide range of public services are likely to disappear and more than 1,000 jobs will be axed as Birmingham City Council faces up to its gravest financial crisis.

A deadly cocktail of savage cuts in Government grants and soaring demand for costly social services has left the country’s largest local authority scrabbling to find up to £160 million in savings during 2013-14, on top of about £400 million already identified.

In the six-year period from the 2010 General Election to May 2016, the council will have been forced to slash spending by £600 million, equivalent to half of the total revenue budget.

Cuts on such a scale are unprecedented and far outweigh anything implemented during the Thatcher era of 1979 to 1990, or during the Labour government’s financial crisis of 1974-79.

City leader Sir Albert Bore warned: “This is the end of local government as we have known it.”

Sir Albert, who took over in May, said the council would have to become more inventive in the way it used limited funding and move from directly providing services to strategic commissioning from other public bodies, the third sector and the private sector.

He intends to launch a consultation into next year’s budget in November.

But he said it was certain that the council would soon be forced to provide only the services for which it has a statutory responsibility. These include adult and children’s social services, schools, refuse collection and housing.

The council leader was unwilling to comment publicly, but sources confirmed that a range of other services including leisure, sport, culture, libraries and youth services are likely to be shut down or offloaded by the council. There are outline proposals to transfer a range of cultural services to a trust.

Sir Albert said: “We will be looking at seriously reducing some services dramatically and over the next few years we will certainly be looking at decommissioning some services because there is no alternative to that.

“We will try to look at protecting those most in need, the vulnerable, there has to be fairness in this budget.”

While the council has known for more than a year that budget-making between 2013 and 2015 would be difficult, a number of recent decisions by Local Government Secretary Eric Pickles has made Birmingham’s position worse.

Proposed changes to the grant system, the cost of schools transferring to academy status and changes to the council tax regime combine to place an additional £60 million burden on the council. Birmingham will have lost about £320 million in Government grant between 2010 and 2016 as a direct result of the Chancellor’s attempts to reduce national debt.

Sir Albert said it was inevitable that more council jobs would disappear. A non-schools workforce of more than 25,000 five years ago is already down to below 20,000 and will drop even further over the next few years.

The council leader said he expected more than 1,000 jobs to go by 2016.

He warned that the cost of meeting transfer costs for schools moving to academy status could bankrupt the education department before long. “When 40 per cent of Birmingham schools have become academies, there will be no money left to pay for the other 60 per cent of schools,” Sir Albert claimed.

Little can be done to generate extra income through raising the council tax. Mr Pickles’ latest directive means that Birmingham would have to secure approval through a referendum if it wanted to increase bills by more than 1.6 per cent.

Labour councillors are expected to rule out large increases as pointless since an additional one per cent on bills raises only £2.6 million in income. Bills would have to rise by at least 50 per cent to close the spending gap, even if voters were willing to back such a proposal.

Research carried out by Birmingham University suggests that an even greater financial crisis is looming. By 2022 it is forecast that the cost of delivering social services and schools will be more than the council’s total budget.

The research suggests that local authorities like Birmingham have been disproportionately affected by the cuts because they are over-reliant on Government grants to deliver services in areas of deprivation.

There are also two time bombs ticking away that may return to haunt the council.

The cost of meeting equal pay claims from thousands of discriminated against female council workers cannot be quantified. A sum of £300 million has been set aside, which will have to be borrowed, but the final settlement could be far greater.

Birmingham’s high level of borrowing – the council has a £2.4 billion debt – will also cause problems in the long term. Net borrowing increased again last year, by £452 million, as a result of a Government decision to abolish housing subsidy. Expensive infrastructure projects like the new Library of Birmingham are largely funded through borrowing, pushing up debt repayment costs.



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