On Birmingham's "effective bankruptcy"

1) Yesterday, Birmingham issued a "section 114 notice" under the Local Government Finance Act 1988, or "declared effective bankruptcy" as the press describes it. All new expenditure, except to fund services it has to provide by law, are banned. Existing commitments and contracts will remain in place. It follows the footsteps of Northamptonshire (2018), Croydon (2020 and 2022), Slough (2021), Thurrock (2022), and Woking (2023). 

2) Councils have statutory duties to provide adult and children social care, which cost money. Indeed, more and more money is needed as population ages and expectations rise. 

3) Revenue has not risen in line. Since 2012, council tax increases over a certain threshold are banned, unless they are voted for in a local referendum (I have never seen one) or approved by the central government. And grants from the central government have been cut, because, well, austerity. 

4) Remember the eloquent "Barnet Graph of Doom" from around 2012? As statutory activities (ie social care) suck up more and more of the limited incomes, less and less is left over for "non-essentials": parks, libraries, road maintenance, etc. At some point, some councils can no longer meet their statutory duties, and... boom!

One of the many versions of the "Graph of Doom". Source. 

5) Sometimes, the situation is made worse by bad management and/or bad luck. 

6) Some councils are more fortunate. Westminster has licensing and parking incomes from the West End. Newham has been helped by Royal Docks and Stratford's settlement by working-age middle class council taxpayers who demand little social care services. Not all councils are like them. 

7) I suspect the section 114 notice has become an obligatory step to get to a politically feasible solution, because no one wants to be blamed for raising council tax or cutting services. 

In Croydon, the central government waived the local referendum requirement and approved — indeed, imposed — a 15% council tax hike, which it would only do under the political cover of the council's "effective bankruptcy". The local councillors can wash their hands clean, saying (rightly) they have been left with no choice.

It is disruptive, it is inefficient, but it's probably necessary.

8) The Guardian's headline called Northamptonshire a "Tory county council" when it issued a section 114 notice. The Daily Mail's article yesterday starts with the words "Labour-run Birmingham City Council". Neither is helpful. 

9) As the space for discretionary spending narrows, local elections are increasingly inconsequential. Whomever the voters elect, most of council taxes now go towards meeting statutory requirements set by Parliament. As the deputy leader of Croydon council powerfully put it in 2013, “there is a time coming, and it’s not far off, when the costs of dealing with an ageing and increasingly deprived population will mean that there is literally nothing left in many councils’ coffers for anything but social care."

10) I probably did not add anything. I am mostly repeating points that have been made since over ten years ago.  

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