Commissioners highlight budget woes, governance issues and “painful” path ahead in first report on Birmingham

Commissioners have said Birmingham City Council has been "slow to understand the scale of the financial difficulty it has created for itself" and warned that, if necessary, they will exercise council functions using powers handed to them in government directions.

Writing in a progress update letter sent to the Secretary of State for Levelling Up, Housing and Communities, Michael Gove last month, but published yesterday (22 February), lead commissioner Max Caller did, however, note that the council is starting to respond to the commissioner and direction regime.

Caller added: "What is clear is that the leadership is willing to try, and we will support, guide, and challenge them over what will be a very painful process extending for some years. If necessary, the Commissioners will exercise Council functions, as per the Directions issued on 5 October, although our preferred mechanism remains to help the council get it right itself."

Birmingham issued its first section 114 notice in September 2023. A month later, directions were issued, and commissioners were appointed.

The commissioners said they issued the update two months early due to the "scale and reach of the issues that are now coming to light".

The commissioners' letter said: "Hard decisions have not been taken, issues have not been followed through to resolution and the overriding impression we gained on arrival was that officers felt it was never possible to tell bad news to senior management or Members, and Members felt they were never told the truth, resulting in a climate of mutual distrust and suspicion and occasional poor behaviour.

"In part, this was due to a rotating cast of senior officers and members, particularly the Statutory Officers."

The letter also highlighted issues around budget proposals, noting that when the commissioners arrived in October, "none of the normal budget setting processes, involving identification and validation of potential savings and reconfiguration of service offers, had been commenced whilst most councils would have started in June/July".

The council has since identified a revenue budget gap of around £300m over the next two-year period, the letter said.

The budget gap is separate from the council's equal pay liabilities that total £750m, and the additional costs of Birmingham's "thoroughly botched" IT system, Oracle, which is estimated to cost £50m, the commissioners said.

Birmingham is counting on Government support in order to set a lawful budget for 2024/25.

Commissioners have set a target for the council to be 15% smaller in two years' time and predict that a capitalisation direction of £1.5 bn is needed in order to enable redundancy costs, rebuild useable balances, and the residual revenue gap to be capitalised.

The £1.5bn will need to be covered by asset sales generating capital receipts and the elimination of the majority of the capital programme, the letter said.

Commissioners have set a target of £500m receipts received in the first 12 months, with a further target to follow thereafter.

Failure to deliver the financial goals will lead to commissioners exercising powers set out in the directions, the letter warned.

A short section on governance at Birmingham said: "Failures in governance and the cultural acceptance that there is a correct and lawful way of receiving advice and taking decisions has long been a feature of the council's problems."

It added that changing and embedding the required process "will be a fundamental part of the improvement journey".

The letter noted that Birmingham has acted to ensure the Audit Committee's terms of reference now match CIPFA best practice guidance, meaning that it will be chaired by an opposition councillor and training will be mandatory for its members.

The council has also accepted the findings of a Centre for Governance and Scrutiny review and has received a report from Professor Colin Copus, which will change the way the full council works.

"Together, all these changes will provide a more appropriate constitutional framework but it will be changed behaviours that will make this come to life," the letter said.

The commissioners also highlighted well-running areas, such as Birmingham's adult services, which was reported as good by the CQC in a pilot inspection and children's services, which was rated good by OFSTED in April 2023.

It also said there have been "gradual improvements" in SEND services.

Responding to the update, Gove said he expects commissioners to oversee the council's delivery of the savings plans through the 2024/25 financial year and into 2025/26.

He added: "The governance arrangements in Birmingham City Council need to improve, particularly around the roles and responsibilities of officers and members. It is imperative for residents in Birmingham that these relationships are functional and support effective and efficient ways of working within the council and I expect to see the council make speedy progress in this area."

A Birmingham City Council spokesperson said: “We welcome this report from the lead commissioner and the secretary of state's response to it. Work has continued to progress since the report was published in January, and we have this week published our budget proposals which the secretary of state has acknowledged as a credible savings plan.

“We also note the secretary of state's positive comments about our adult social care service and the progress made in the city's SEND provision. We are working hard to make sustainable improvements for the benefit of all our residents. Regarding our housing stock we have now approved ambitious plans to prioritise investment in our existing council house stock above all else, so the quality of residents' homes can be improved as quickly as possible.

It added: “We know however there is still much work to be done which the report makes clear. We greatly value the commissioners' knowledge and experience and we will continue to work constructively and collaboratively with them as we continue to focus on the challenges ahead to ensure long-term, sustained improvement.”

Adam Carey