City of Birmingham declares bankruptcy, shuts down nonessential spending after being hit with $950 million equal pay claims

 The local government body of Birmingham, the U.K.'s second-largest city, effectively declared bankruptcy on Sept. 5 because it no longer has enough money to pay the £760 million ($954 million) equal pay claims it owes to female government employees who were paid less than men in the past.

Birmingham City Council, which provides services for more than one million people, filed a Section 114, stopping all spending except on essential services.

"The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability," it said in a statement. "The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately."

Sharon Thompson, deputy leader of the council, told councilors that the city faces "longstanding issues, including the council's historic equal pay liability concerns," according to the U.K.'s PA Media news agency. Back in 2012, the Supreme Court ruled in favor of a group of mostly female employees who didn't receive bonus payments that were given to those occupying traditionally male-dominated roles at Birmingham's council.

The deficit arose due to difficulties paying between £650 million (around $816 million) and £760 million (around $954 million) in equal pay claims, the notice report included. In June it had already paid £1.1 billion ($1.4 billion) but still had some remaining claims which it estimated would accrue at the rate of between £5 million ($6.3 million) and £14 million ($17.6 million) a month.

"This is one of the biggest challenges this council has ever faced, and we apologize for the failure to get this situation under control," the council said at the time, adding that it was in talks with external auditors to find possible solutions.

Thompson also admitted that the local government is facing a perfect storm. "Like councils across the country, it is clear that this council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates incomes to the impact of rampant inflation." However, she assured that while the council is facing significant challenges, the city is still open for business and they are welcoming people as they come along.  

British Prime Minister Rishi Sunak said: "Clearly it's for locally elected councils to manage their own budgets." He added that the government has been "engaging regularly with them to that end and has expressed concern about their governance arrangements and has requested assurances from the leader of the council about the best use of taxpayers' money."

Birmingham city council leader John Cotton told the BBC that the council was working with the union to introduce a thorough job evaluation scheme to settle the equal pay row by April 2025. "My priority now is ensuring that we have a financial recovery plan in place that can meet the great demands that are placed upon the council and continue to provide the services that the city relies on," he vowed to the public.

More reasons for Birmingham's collapse

Apart from the humongous pending equal pay claims by the female residents of the city, there are other reasons that contributed to the fall of Birmingham. According to Daily Mail, the local city council spent millions on a 'botched IT system' by Oracle, which was supposed to cost £19 million ($23.8 million). However, after three years of delays in getting it in place and problems once it was installed, it is now expected to cost £100 million ($125.13 million).

They also spent another £184 million ($230.2 million) on a costly bid to stage last year's Commonwealth Games, a major sporting event for Commonwealth countries. Other costs include a £13 million ($16.27 million) investment in the 2026 European Athletics Championship, as well as unrevealed outlays on a series of 'inclusive' street signs and an ambitious 'Green roads' plan.

Moreover, the council raked in close to £90 million ($112.62 million) from its controversial Clean Air Zone only to pump more than £50 million ($62.6 million) back into hydrogen buses and cycle lanes, a report stated. Apart from the local issues, the city is also haunted by inflation, rising demand for adult social care and "dramatic reductions" in income from business taxes.

Birmingham City Council currently runs Adult Education Services, aging well services and parks, leisure and well-being, as well as voluntary and community health and care services.