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  • Writer's pictureDavid Marlow

Is Birmingham’s S114 notice the breaking point for local authority finance?

Updated: Oct 9, 2023

Birmingham City Council issued a S114 notice in September, indicating it cannot meet its expenditure commitments in this financial year. In LEDC’s roundup of sector developments for September 2023, Mike and David analyse what this means for the council, the city, and for local authority leadership and management of economic development more widely.

Financial analyst at work

Why are local authorities under such acute financial pressures?


Birmingham is not the first and nor will it be the last local authority to issue S114 notices. Whilst each council is pushed over the edge by ‘perfect storms’ of specific issues – including backdated Equal Pay claims in Birmingham’s case – the fundamentals of local government finance in England are horribly broken.


Increasing demand for statutory and non-statutory services, very limited and restricted local revenue raising powers and flexibilities, highly constrained and often hypothecated national Government financing, and now the return of inflation and economic downturns have driven almost all councils towards and sometimes over the edge of a financial precipice.


The figures for the sector are stark. Between 2009/10 and 2019/20, local authority spending power in England fell by 17.5% in real terms, before partially recovering in the years following the pandemic. In 2021/22, local authority spending power was still 10.2% below 2009/10 levels.


This fall in local government spending is largely due to reductions in central government grants. On average these account for around a quarter of council revenue though actual percentages vary substantially across England. These grants were cut by 40% in real terms between 2009/10 and 2019/20. Cuts also fell more heavily on more disadvantaged local authorities: the reason why local government spending hasn't fallen as much in real terms as formula allocations is a combination of local taxes taking the strain (which favour wealthier areas) and various other discretionary grants.


The case for fundamental reforms of the local financial system is a regular theme of LED Confidential. As more councils replicate the current Birmingham experience, the need to resolve the systemic challenges can only grow more urgent.


Is the UK Government’s response to S114 notices a cure or will it make things even worse?


The UK Government’s response to S114 notices is typically to send in Commissioners, effectively to run the council, and to return it to financial viability. Indeed Michael Gove, the DLUHC Secretary of State, has confirmed a five-year intervention, led by Max Caller – a veteran of many such interventions. Among the options the Commissioners will consider are asset sales to raise cash to address financial liabilities. High profile strategic assets like Birmingham Airport and iconic city centre sites have been said to be in-scope of this sort of exercise.


In the LEDC episode, we reflect on this as the antithesis of what a place actually needs for post-crisis turnaround and recovery. For any place to spend several years focused on closing financial deficits through cutting services, reducing employment, and selling off prize assets runs a high risk of a wasted decade. For this approach to be foisted on a great city like Birmingham is tragic.


It also ignores central government’s complicity in the financial crisis facing so much of the local authority sector. In addition to the reductions in national grants, the restrictions on revenue raising, and the general economic and fiscal context are national, not local, choices (some might call them national failures). Indeed, much of the debt facing the sector comes directly from the Treasury, through its very own Public Works Loan Board (PWLB). We questioned whether PWLB’s lending to both Birmingham and Woking support an argument of national government direct culpability in incubating the crisis.


What does all this mean for LED and placemaking?


It’s hard to be positive about the current system and circumstances. Without specific statutory LED requirements of local authorities and dedicated funding, the risk of savage curtailing of activity is high. But paradoxically, at its best, LED’s impact on a place’s profile and reputation, and its ability to attract and grow economic activity, ought to be a key to restoring financial resilience and dynamism – at least it would be in any sensible and sustainable local government financial regime!

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