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Birmingham City Council’s exceptional financial support package should be “redrawn and extended” to limit the impact of cuts on services, according to researchers.
Academics from the Audit Reform Lab, based at Sheffield University, have published a report today about the events that led to Birmingham’s first section 114 last year and the government intervention package that followed.
The report, which was commissioned by the trade unions Unite, Unison and GMB, raises concerns about attributing Birmingham’s problems to the equal pay liability of £760m, because that figure is “potentially overstated”.
Focusing on the equal pay issue “deflected” attention from the costs associated with the difficulty implementing a new Oracle IT system, which is estimated to cost the council £100m, as well as the impact of austerity, the report says.
Commissioners were appointed in September 2023 and Birmingham is making £300m worth of cuts over two years. The previous government provided a £1.2bn capitalisation direction through the exceptional financial support system.
Audit Reform Lab’s report warns that by April 2026, when the current capitalisation period comes to an end, the city “may struggle to set a lawful budget without further support”.
One of the report authors James Brackley told LGC that by making such deep cuts now Birmingham risks “cost spirals” because cutting preventative services will “drive costs” up elsewhere, such as higher temporary accommodation costs.
The report suggests the capitalisation direction be “redrawn and extended to April 2028” and linked to the costs of Oracle, instead of the equal pay liability.
“Extending the capitalisation period provides for a more realistic timeline to fully implement Oracle and underwrites the process until the financial position of the council is properly established,” the report says.
Call for inquiry to ‘establish the facts’
Audit Reform Lab called on the government to establish an inquiry to “establish the facts”.
Former communities secretary Michael Gove announced a public inquiry last September, but it has not yet been established.
The report suggests the inquiry should look at whether there was a sufficient best value assessment prior to appointing commissioners, the role of external auditors and the level of public consultation prior to cuts being implemented.
Audit Reform Lab says it has “found a central ambiguity around the status of the equal pay liability figure of £760m,” which was unaudited by the council’s auditor Grant Thornton.
Responding to the report a Grant Thornton spokesperson said they had “engaged with the report’s authors at length and in detail to clarify its factual misunderstandings” but that “it still maintains assumptions and allegations which are incorrect”.
The spokesperson added: “The basis of the report is also flawed as it refers extensively to the equal pay liability as not being a key element of [the council’s] financial situation. This is inaccurate. The report acknowledges that it has been prepared only on the basis of publicly available documents and, therefore, without reference to accounting records and other confidential information which are central to explaining the causes of the council’s equal pay liability, including the role of any of the key parties involved. As a result, the report is based on an incomplete set of facts.”
Commissioners: ‘Oracle a small part of a 2024-25 gap’
Max Caller, lead commissioner, told LGC that extending the timescales for the exceptional financial support package may not be sensible because “if you take longer it costs more”.
Mr Caller added that the revenue budget gap was connected to the “council’s failure to deliver savings” in previous years.
“We are looking forward to Joanne Roney starting with us [as managing director] in a couple of weeks,” Mr Caller added. “We’re confident that by working with her and her team, we will to help the council get out of trouble.”
In a statement the commissioners said the Oracle implementation “is a relatively small proportion of the 2024-25 budget gap”.
“Oracle was on any measure a very badly managed project but there are a host of other factors that have led to this dire budget position. At the heart of it is poor financial management and a disfunctional management culture,” they added.
Leader: ‘We must take responsibility’
Birmingham’s leader John Cotton (Lab) said he was “working very closely” with the new government and hopes multi-year funding settlements would help the council to improve.
“I have been clear from the start that we must take responsibility for the failings that have contributed to our current difficulties, but the mistakes made in Birmingham have not occurred in a vacuum. Report after report shows that there’s a national crisis in local government caused by 14 years of neglect from the previous Tory government, combined with major rises in demand and cost led pressures,” he said.
In March Cllr Cotton told LGC he had been urging Mr Gove to launch the inquiry. He said: “I’m pressing the government to just get started with that [the inquiry], because I think people in the city do deserve answers.”
An MHCLG spokesperson said: “We are working with commissioners in Birmingham City Council on the challenges faced at the authority, and returning it to financial stability.
“Ministers have met with the leader and deputy leader of the council, and the commissioners, to discuss the progress being made there.”
The new Labour mayor for the area said the report’s recommendations should be considered.
Richard Parker (Lab), who became mayor of the West Midlands CA in May, said: “This is a very interesting report, that raises some very important issues. It deserves full consideration.”
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