Councillors at Birmingham city council “ignored the warning signs” of its financial crisis and caused a “self-inflicted” disaster that will take years of cuts to rectify, according to the lead government commissioner drafted in to help.
Local government expert Max Caller, who has been nicknamed Max the Axe for his unsparing approach to budget cuts, was lured out of retirement to take on the task of fixing England’s largest local authority after it effectively declared itself bankrupt.
“They should never have done this. They ignored the warning signs, crashed on regardless and they have created themselves a controlled disaster,” said Caller, who is five weeks into the task of pulling the local authority from the financial brink.
The council issued a section 114 notice in September, largely due to a rapidly escalating equal pay claim bill of at least £760m and problems implementing a new IT system costing £100m.
“There will be job losses, it’s inevitable. There will be some services that will no longer run, it’s inevitable,” Caller said. “It won’t be easy. It will be painful, and some things will get worse before they get better. But it will be a smaller, more focused operation at the end of it.”
Caller has worked in local government for decades, being drafted in to councils including Hackney, Tower Hamlets and Slough to sort out mismanagement and debt.
Birmingham looks likely to be his biggest challenge yet, after a financial report published on Wednesday showed the council has an expected budget shortfall of £164.8m in 2024-25, rising to £177.1m in 2025-26.
The council must make £165m of savings in the next financial year, with usable reserves £670m in the negative – an “unprecedented financial position” according to the council’s finance director, Fiona Greenway.
A statement from Caller’s commissioning team, appointed by the levelling up secretary, Michael Gove, criticised the “very limited progress” made so far and said without “significant action” by councillors they would struggle to set a lawful budget for the forthcoming year.
“Their track record in delivering savings is not good. In the last few years, they’ve just never hit their savings target and there’s no penalty for doing that. Those days are gone,” he said.
According to Caller, the problems implementing a new IT system, the council’s first big IT upgrade since 1999, is not only costing huge amounts of money but preventing it from being able to assess the scale of the problem.
“The disaster over the implementation of Oracle effectively means they won’t have coherent accounts for two years. They don’t know who’s paid their council tax and their business rates entirely,” he said. “Our judgment presently is they’ll have to start again, take [the system] out and put it back in, and that’s a long job.”
While the selling of assets is imminent, he said it was unlikely to include heritage assets, such as [its base] the Council House or city museum and art gallery. “The council owns so much stuff it doesn’t know what to do with that there’s plenty of things to sell before we would even get close to thinking about it,” he said.
John Cotton, the leader of Birmingham city council, said the budget shortfall came after “a decade of cuts and recent rampant inflation”.
“The cabinet and leadership team are focused on working with commissioners to meet these challenges and get the council on a road to improvement,” he said. “We know it will not be easy and we will have to make very difficult decisions about where money is spent and invested – and what we can no longer afford to do.”
Despite the growing number of local authorities in financial straits, Caller said that, although councils were struggling, most were handling current economic pressures.
“There are authorities that are struggling with the energy cost increase, struggling with the inflation rates and certainly the local government settlement has not kept up with those sorts of things,” he said. “Short-term shocks after a long period of austerity: it’s not surprising that councils are struggling.”
Nottingham city council could be the next to go bust, after announcing a £26m gap in its finances for the financial year, while Somerset council declared a financial emergency this week.
But Caller said the situations at Birmingham, and other councils in financial crisis, were unique, often down to risky decision-making.
“Ending up with a potential liability of three-quarters of a billion [pounds] because, over years, you’re getting equal pay wrong, and spending something short of £200m on not managing to implement Oracle properly. Those are self-inflicted, aren’t they?” he said.
“You’ve got to do the basics really well, before you do clever. And many of these authorities have not focused on doing the basics really well.”
