Experts claim section 114 notice at Birmingham was based on “materially misstated” figures

The signatories, who include academics and senior local government finance professionals, claim that the decision to issue the notice was based on "materially misstated" figures about the council's reserves and equal pay liabilities.

However, Birmingham's commissioner team has since rejected the claims, describing the analysis as "ill-informed".

In a letter sent to the Secretary of State for Housing, Communities and Local Government, Steve Reed, the group said: "The release of the council's latest accounts has revealed that crucial figures used to 'bankrupt' the council, including forecast levels of reserves and alleged equal pay liabilities, appear to have been materially misstated.

"We call for a public inquiry to establish how and why such a damaging Section 114 notice could have been initiated based on unaudited and, as has now come to light, materially incorrect accounting information."

The letter draws on analysis by Dr James Brackley, a lecturer in accounting at the University of Glasgow, which argues that Birmingham "both overstated its projected budget deficits and materially underestimated its available funds".

According to Dr Brackley, newly published accounts for 2022/23, 2023/24 and 2024/25 suggest that the council's reserves were significantly higher than the figures provided when the Section 114 notice was issued in September 2023.

He said that officers had told members that the council was "in a negative general fund position" when in fact, the 2023/24 accounts show a positive general fund position around £1.4 billion higher than the figure given to councillors and the public at the time.

The experts' letter states that the reserves position "put forward by the council at the time of the 'bankruptcy' now appears to have been materially incorrect, to such an extent that it now appears that the council was likely never 'bankrupt'."

Rejecting the letter's claims on Friday (31 October), commissioners said the Section 114 notice had been based on two figures: an £87m in-year overspend in 2023/24, and a projected £760m equal pay liability.

They added that, on arrival, the commissioners were "satisfied that these two figures were reasonable", and pointed to a further £375m budget gap for 2024/25 with "no savings identified with which to address that gap".

"This revenue gap meant that if left unchecked - and BCC had absolutely no plans in place - the council's debts would increase by £375 million each subsequent year," the statement said.

The commissioners said that at the time, the council's general reserves were insufficient to meet these liabilities, with most reserves ringfenced for specific purposes such as education.

They continued: "Claims that the council was in reasonable financial health are entirely incorrect and based on a flawed analysis and a fundamental misunderstanding."

The team also noted that the council would have incurred a "significant" equal pay liability without the statutory intervention, which implemented a change of approach and eventually saw the trade union dispute settled.

The letter said that the council's financial problems were "not the cause of its problems, but the consequences of them".

On this, it said: "For example, the disastrous implementation of Oracle and the failings of the Perry Barr housing development that have each left the council with an additional £150m debt to name just two, were brought about by past failings of leadership, weak corporate governance and a cavalier approach to financial management (resonant of some of this ill-informed financial analysis)."

The team said that the council is currently on target to set a balanced budget in 2026/7 for the first time in three years and "there is the prospect that asset sales of £750m will be sufficient to meet potential liabilities and deficits, though that is not yet certain".

Adam Carey