Birmingham broke
The business news that matters
Hello and welcome to the latest Off to Lunch…
Birmingham City Council, the largest local authority in Europe, has declared that it is in financial distress.
The council has issued a Section 114 notice, which means it cannot balance its books and is effectively bankrupt. The council is facing a bill of £760 million to settle equal pay claims and has had problems implementing a new IT system.
You can find the council’s statement on its financial situation here.
The Section 114 notice means “all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately”, the council said. Birmingham City Council has a £87 million shortfall in its budget this year and says that the liability associated with settling the equal pay claims is accruing at between £5 million and £14 million every month.
John Cotton and Sharon Thompson, the leader and deputy leader of the council, said:
“Like local authorities across the country, it is clear that Birmingham City Council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates income, to the impact of rampant inflation, it is clear that local government is facing a perfect storm.
“Sigoma, who represent large local authorities, recently warned that up to 26 local authorities could issue a Section 114 notice in the next two financial years.
“We implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support. Today’s issuing of a Section 114 Notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents.”
The warning from Birmingham, which has a Labour-led council, is the biggest example yet of the strain on local authorities across the UK. Other councils that have issued Section 114 notices in the last two years include Croydon, Slough and Thurrock.
This is the definition of a Section 114 notice from the Local Government Finance Act 1988
The chief finance officer of a relevant authority shall make a report under this section if it appears to him that the expenditure of the authority incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to it to meet that expenditure.
You can find more details about the situation facing Birmingham in the BBC’s story here. That includes a useful guide to what happens next. In short, the council must now meet in the next 21 days to discuss next steps. This allows it to agree on a new budget, which could include cuts to spending and tax rises.
Other stories that matter…
1. A follow-up to our piece yesterday about the Office for National Statistics making significant revisions to the UK’s economic performance. As a reminder, the ONS announced that it now calculates that the UK economy is 1.8 per cent bigger than previously thought. This means the UK actually regained the losses it suffered during the Covid-19 crisis by the end of 2021 and is not the worst-performing economy in the G7. Patrick Hosking writes in The Times that the reasons for the revisions were “gigantic and not very well explained”, noting that healthcare output is now expected to have grown 57.1 per cent in 2021, not 34.6 per cent, and that energy output fell by 32.1 per cent rather than growing 5.1 per cent. He adds: “GDP is a slippery thing and hard to measure, especially in times of upheaval. But, rightly or wrongly, it is closely watched. We need some kind of independent inquiry.” You can find that piece here. Tim Leunig, a director at the consultancy firm Public First Economic and Strategy Consultancy, makes a similar point in a column for the Financial Times. “Wrong statistics lead to wrong decisions,” he writes. Piece here
2. The discount chain B&M has announced that it is buying 51 Wilko shops for £13 million. Statement here. The future of Wilko’s remaining 300-plus stores remains in doubt. For more on Wilko check-out our latest Business Studies podcast episode on why businesses fail. You can listen to the episode on Substack here, Apple here and Spotify here. As a reminder, Business Studies is now taking a now taking a short summer break but I will be filling that gap with some writing on our recent episodes. Stay tuned…
3. Alan Joyce has quit as the boss of Qantas after 15 years in charge of the Australian airline amid a mounting scandal over allegations the company sold tickets for flights that had already been cancelled. Joyce, who was born in Ireland, was due to retire later this year. He has been replaced by Vanessa Hudson. Guardian story here and Qantas statement here
4. The Financial Times has done a fascinating in-depth piece about the pressure on Sequoia Capital, arguably the world’s leading venture capital firm, after it spun off its China arm and suffered losses on the collapsed crypto business FTX. Eric Doppstadt, chief investment officer at the Ford Foundation, the longest-standing limited partner in Sequoia (ie a key investor), is quoted as saying: “Sequoia will do everything to stay on top.” Piece here
5. Centre for Cities, the think tank, has produced new research that looks at how improving the economic health of cities in the UK boosts the towns and villages around them. Rather than pitting cities and towns against each other, the report says, the UK should focus on investing in the infrastructure of cities to maximise the “trickle out” effect. You can find that research here. On a similar note, Politico published an interesting piece last week about the struggles facing towns in the UK and whether the takeover of the football club in Wrexham by Ryan Reynolds and Rob McElhenney offers a blueprint for others to follow. That feature is here
And finally…
A collection of high-profile books and films about business are due to arrive this autumn. I have previously mentioned Michael Lewis’s book on Sam Bankman-Fried (due to be released on October 3) and Walter Isaacson’s biography of Elon Musk (which is released next Tuesday and was previewed in The Sunday Times at the weekend here). On top of that, we have the movie Dumb Money, which is about the GameStop saga and how a collection of retail traders used Reddit to co-ordinate a squeeze on hedge funds betting against the company, making themselves millions of dollars. In his Bloomberg column this morning, John Authers reflects on those events in early 2021, noting how the meme-stock craze has encouraged “finfluencers” to use social media to offer stock recommendations, often with limited skill and success.
You can read his excellent column here and see the trailer for Dumb Money below…
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Best
Graham