UK cities declare bankruptcy

Mark O'Neill October 06, 2023 06:00

On September 5, Birmingham, Britain’s second largest city, declared bankruptcy due to "unprecedented financial challenges".

It made headlines around the world – the city was a centre of manufacturing from the start of the Industrial Revolution and invented the world’s first cotton mill and industrial steam engine. It boasts five universities and a library and symphony of international renown. With a population of 1.145 million, it is the largest local authority in Europe.

It was the fourth British city, after Croydon, Thurrock and Woking, to declare bankruptcy since 2022, and more will follow. In August, Sigoma, a group of 47 large English urban authorities, said that one third of its members would declare bankruptcy this financial year or next, with councils facing a funding gap of three billion pounds over the next two years just to maintain services.

In announcing the bankruptcy, the Birmingham city council said that it faced a huge increase in adult social care demand, dramatic reductions in income from business rates and high inflation.

In addition, in 2012, the Supreme Court ruled that the city had discriminated against hundreds of woman employees in not giving them bonuses awarded to their male colleagues. This ruling has cost the council 1.1 billion pounds, with an additional 650-760 million in payments to follow. Like other councils, Birmingham is trapped between legal obligations to provide basic services and balance its books.

In response, the central government in London has said that it will replace the elected leaders with officials it will appoint, led by Max Caller who specialises in running local councils in financial trouble.

He will cut non-essential services and sell off council assets. While child protection and adult social care will be paid, other services will be at risk, including the frequency of rubbish collection, donations to the voluntary sector and jobs.

The bankruptcies are one of many results of the Austerity introduced in 2010 by the new Conservative government to balance the budget after the 2008 financial crisis. It has sharply cut budgets for policing, housing, welfare and local government. It has reduced the number of police in England and Wales by 20,000. Between 2010 and 2020, it cut more than 30 billion pounds in welfare payments, housing subsidies and social services.

Austerity has turned Britain from a western European state with a generous social welfare system and egalitarian ethos to one more like the United States, where millions lack health and losing a job can cause a sudden fall in family revenue. Three million people, including many in employment, regularly use Food Banks that provide free meals. Waiting for months for an operation in a public hospital has forced many to pay for expensive private care.

One of the worst victims of this austerity has been local governments. They have received less money from the central government for the police, road maintenance, libraries, courts, prisons and housing assistance for elderly people. But, despite the reduced income, they are legally obliged to provide many services to the public.

The Institute for Public Policy Research, a thinktank, said in September that, to plug budget shortfalls over the last 10 years, local governments had sold public assets worth 15 billion pounds, including playing fields, youth clubs and libraries.

Birmingham’s new administration under Max Caller is likely to sell more of the city’s assets.

Birmingham was the terminus for both of the world's first two long-distance railway lines - the 132-km Grand Junction Railway of 1837 and the 180-km London and Birmingham railway of 1838.

But the government is hesitating over its most important rail project of the 21st century – a high-speed (HS2) line between London, Birmingham, Manchester and Leeds. In 2021, it scrapped the leg to Leeds. Now it is considering scrapping or delaying the link between Birmingham and Manchester. The original budget of 70 billion pounds has been revised up to more than 90 billion, because of inflation.

The elected leaders of Birmingham and Manchester say that the promise of the line and the integration it would facilitate had attracted billions in investment and more would come.

The business community is strongly in favour, to increase passenger capacity on the route and free up existing lines to take more freight off the roads and help achieve the country’s environmental goals.

Will HS2 be another victim of austerity?

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.