Birmingham city council, the local government body of the U.K.'s second-largest city, effectively declared itself bankrupt on Tuesday because it doesn’t have enough money to pay £760 million ($955 million) in equal pay claims it owes to female government employees who were paid less than men in the past.
The council, which is Europe’s largest local authority, issued a section 114 notice to cut all nonessential spending, declaring that it faces a deficit of £87 million ($109 million) in the current financial year.
“The Council has insufficient resources to meet the equal pay expenditure and currently does not have any other means of meeting this liability,” the Birmingham City Council said in a statement.
“The notice means all new spending, with the exception of protecting vulnerable people and statutory services, must stop immediately.”
In 2012, the Supreme Court ruled in favor of a group of mostly female employees who didn’t receive bonus payments that were given to those occupying traditionally male-dominated roles at Birmingham’s council.
Birmingham’s council said in June that it had already paid £1.1 billion ($1.4 billion) in equal pay claims over the last decade, but still had some remaining claims which it estimated would accrue at the rate of between £5 million ($6.3 million) and £14 million ($17.6 million) a month.
“This is one of the biggest challenges this council has ever faced, and we apologize for the failure to get this situation under control,” the council said at the time, adding that it was in talks with external auditors to find possible solutions.
Councils are typically funded through a combination of sources including central government grants, parking services, and taxes.
A spokesperson at Prime Minister Rishi Sunak’s office said “it’s for locally elected councils to manage their own budgets” but said the government was providing additional support worth £5.1 billion ($6.4 billion) to councils this financial year, according to the Guardian. Sunak had previously ruled out the possibility of a bailout, blaming Birmingham’s leaders for mismanaging funds.
Birmingham joins other cash-strapped councils like Woking, Croydon, and Thurrock in declaring bankruptcy. While the council plans to shield the vulnerable sections of the population from the impact of this austerity measure, councils elsewhere have hiked taxes to shore up finances in the past.
The funding gap for local authorities in England and Wales is expected to climb to £2 billion ($2.5 billion) or more in the 2023–2024 financial year, according to political organization Local Government Association.
Apart from the mountainous bill for settling equal pay claims, Birmingham’s city authorities face financial challenges due to inflation and increasing cost of social care. The city also hosted big events including 2022’s Commonwealth Games and implemented a new IT system, which added to its financial pressures. At the same time, the council has invested in regeneration projects that have boosted the tech sector and made Birmingham among the best-performing city economies.
A representative at the council directed Fortune to its Tuesday statement when asked for comment.
