Birmingham, England’s second largest city, declared bankruptcy

Birmingham, the second largest city in the United Kingdom, declared bankruptcy this Tuesday (5) and warned that other municipalities could face the same fate, blaming the central government for the low finances and economic situation.

Because London is divided into districts and has relied on “Section 114” of the Local Government Finance Act since 1988, this city’s city council in central England, which manages public services for more than a million people, has an unparalleled number in the country. Bankrupt itself.

This means that only essential expenses are maintained, and the situation is tantamount to bankruptcy of a company. Without the help of the central government, the municipal administration cannot balance the statutory budget.

The legislative instrument also stipulates that members of the chamber must present an action plan within 21 days to address the deficit.

Leaders of Labour, the party that controls the legislature, one of Europe’s largest, called the move a “necessary step” to realign spending on a more concrete basis.

They blamed “long-term issues”, including implementing a new IT system, for an £87m shortfall in their £3.2bn annual budget. $20 billion).

But the precariousness of their finances has worsened, with “pervasive inflation”, currently the highest in the G7, rising spending on social services for the elderly and cuts in corporate taxes.

At the same time, they said, since coming to power in 2010, successive Conservative governments have cut the city’s funding by 1 billion pounds (R$6.2 billion).

Birmingham City Council leader John Cotton and his deputy Sharon Thompson said the city was not alone in the situation and that local authorities across the UK were facing what they called a “perfect storm”.

With social spending at an all-time high and inflation rising, city governments like Birmingham are facing “unprecedented financial challenges,” Cotton said.

He cited an estimate by Sikoma, a federation of local authorities, that 26 of these municipalities could declare bankruptcy in the next two years.

“Clearly, locally elected councils have to manage their budgets,” replied a spokesman for British Prime Minister Rishi Sunak.

In the United Kingdom, the budgets of municipalities depend on revenues from local taxes levied on citizens and companies, but also on contributions from the state, which have significantly decreased mainly due to the austerity policies of the 2010s.

According to the Institute for Government, a think tank, state funding fell by 40% in real terms between 2009/2010, when the Conservatives came to power, and 2019/2020. Since then, it has increased due to exceptional payments related to the Covid-19 pandemic.

“The financial system is completely broken. Local councils have done miracles in the last 13 years, but there is nothing left,” warned Sikoma chief Stephen Houghton, who asked the central government for help.

Before Birmingham, the London borough of Croydon and Thurrock, east of the capital, declared bankruptcy a year ago.

“The central government allowed local governments to live on cash […] For a long time”, Jonathan Carr West, Director of Local Government Information, a community advisory association, highlighted.

“Birmingham is the most important council to ever declare bankruptcy, but if things don’t change, it won’t be the last,” he warned.

(AFP)

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