Calay News
On Tuesday, the city of Birmingham, the UK’s second-largest, announced its bankruptcy filing, warning that other municipalities could face the same fate due to state underfunding and current economic conditions.
Birmingham City Council, which manages public services for more than a million people, filed for “section 114”, which means only essential spending is allowed, equivalent to bankruptcy for a business. The city cannot balance its budget as required by law without the help of the government.
The mayor, John Cotton (Labour), stated that this was a “necessary measure” to address the situation. He pointed to several exceptional expenses, including fines for labor violations, a reduction in state funding over the past thirteen years, and an increase in the cost of living.
With rising social spending and rising inflation, city councils like Birmingham’s are facing “unprecedented financial challenges,” according to Cotton. The federation of local authorities in Sigoma estimates that another 26 municipalities could declare bankruptcy in the next two years.
The UK government claimed that it was up to local councils to manage their budgets. The budget of UK municipalities depends on local taxes and a contribution from the state that has been significantly reduced due to the austerity policies of the 2010s.
State funding decreased by 40% in real terms between 2009–2010 and 2019–2020, according to the Institute for Government. Despite a temporary increase related to the COVID-19 pandemic, the financing system is considered insufficient.
Before Birmingham, the London Borough of Croydon and the town of Thurrock, east of the capital, had filed for bankruptcy the previous year. Experts warn that this situation could spread if there are no significant changes in municipal financing.
