Birmingham to settle equal pay claim that tipped council into bankruptcy

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Birmingham city council has reached an agreement with unions over an equal pay dispute that will be significantly less than the £650mn-£760mn estimate of historic claims that tipped the authority into bankruptcy last year, according to people close to the talks.

The council, the largest local authority in Europe in terms of the number of people it serves and services it provides, is expected to announce the agreement as early as Tuesday, forestalling litigation by the GMB and Unison unions.

Three people familiar with negotiations said that a precise figure was yet to be reached, as further detailed internal work would be required to work out the amount owed to individuals.

However, they said the agreed estimate was substantially lower than the £760mn originally accounted for by the council. One person said it meant that as a result, the authority was unlikely to have to borrow further.

Birmingham issued a section 114 notice in September 2023, declaring itself in effect bankrupt, after officials forecast that the council’s historic equal pay liabilities was far larger than previously thought. At the time, the claims had not been audited.

The council’s financial difficulties were also caused by a £100mn overspend on the launch of new Oracle software.

Birmingham was given two years to balance its books and close a forecast £300mn deficit by the former Conservative government.

The council has since agreed some of the deepest cuts to services in local government history, and embarked on a sale of £750mn worth of assets, partly on the basis of the higher estimate for the equal pay claim.

Max Caller, the lead commissioner sent in by the former Conservative government to oversee the council’s finances, told the Financial Times in May that while the council had provisioned for the higher payout estimate, it might end up closer to £250mn, a figure that both the GMB and Unison said at the time was more likely.

The pay claims go back to 2017 when the council agreed a deal with refuse collectors to end strike action. The deal, according to the unions, gave striking male workers favourable terms in a way that was discriminatory to women in equivalent roles.

Financial pressures were compounded when the council introduced other favourable conditions for refuse collectors during the Covid-19 pandemic.

Some elected members of the council have hit out at the cuts imposed on Birmingham, which they argued are decimating services and will lead to the sale of revenue-generating assets that cannot be recovered.

“The whole approach must now be questioned,” said one elected councillor who requested anonymity. They added that the council was in distress in large part because of cuts in central government funding in the decade to 2020 combined with a recent surge in demand for social care.