Bankrupt Birmingham city council applies to raise council tax by more than five per cent to help plug £300 million hole in its finances

• Labour-run council faces a January 7 deadline to reveal how it will raise the funds

Birmingham City Council will apply for permission to raise council tax by more than 5 per cent to help plug a predicted £300 million hole in its finances.

Europe’s largest local authority is essentially bankrupt after it admitted it had an estimated £760 million equal pay liability which is believed to be growing by millions every month.

The Labour-run council is under pressure as it faces a looming January 7 deadline to reveal how it will raise the funds, and may now increase taxes above the ‘referendum limit’ – the amount councils in England can put up the levy without consulting residents first. 

The council has faced anger from residents who have criticised its spending on projects such as the Commonwealth Games, with one north Birmingham local calling it a ‘vanity project’ and saying ‘it’s no wonder the council has gone bankrupt’.

Now struggling households could be hit even harder with by the proposed rise, with campaigners saying working people will be forced to take the burden of the council’s ‘shocking mismanagement’.

Councillor John Cotton said the local authority should not ‘lose focus’ on its effort to save money

The exact size of the council tax hike has not yet been confirmed

The council spent millions on a botched IT system and spent another £184 million on its costly bid to stage the Commonwealth Games.

It raked in close to £90 million from its controversial Clean Air Zone – only to pump more than £50 million back into hydrogen buses and cycle lanes. 

Other costs include a £13 million investment in the 2026 European Athletics Championship, as well as unrevealed outlays on a series of ‘inclusive’ street signs and an ambitious ‘Green roads’ plan.

John O’Connell, chief executive of the TaxPayers’ Alliance, said: ‘Residents will be rightly fearing the worst after their council’s finances collapsed.

‘Local taxpayers worry they will have to pick up the tab for years of shocking mismanagement and risk-taking by town hall bosses. 

‘Urgent action will be needed to limit the damage and avoid placing all the burden on household budgets.’

Documents published ahead of a council cabinet meeting on Tuesday show the council is facing a £87.4 million overspend for 2023/24 and a budget gap of around £300 million by 2025/26. 

The council will now apply for government permission to raise council tax by more than 5 per cent.

In a report written before Tuesday’s meeting, the leader of the council, Councillor John Cotton, said: ‘The council is currently in a position where it is unable to set a lawfully balanced budget, and as such further consultation is now required with the Department of Levelling Up, Housing and Communities (DLUHC) to explore additional Exceptional Financial Support (EFS) to enable the setting of a balanced budget for 2024/25.’

Speaking at the meeting, Cllr Cotton said: ‘We face a budget gap of some £300 million by 2025/26. 

‘Like other councils across the country, we are facing the same rising demand for services, we are having to manage the increased costs of service delivery and issues like inflation.

Under-fire council boss John Cotton told the BBC ‘tough decisions’ would need to be made, as it emerged he was dealing with the crisis remotely while on holiday with his family

‘We are also having to address some specific local challenges, including the non-delivery of previous savings commitments.’

He added: ‘We want to see a wider transformation of the council, we want to see an end to duplication, we want to see a focus on efficiency and cost-cutting savings so we can deliver an organisation that is sleeker and focused on the delivery of key services for residents.

‘It’s also clear that we will need to seek Exceptional Financial Support from the Government in order to bring the council’s budget back into balance.

‘These are obviously very tough times, we have got some difficult and challenging decisions ahead of us in shaping the budget, but what we can’t do is lose our focus on stabilising the finances of this council.’

READ MORE: Bankrupt Birmingham Council faces calls to explain gaping £116MILLION black hole in its school taxi spending figures

The exact size of the council tax hike has not yet been confirmed, but other authorities which have previously issued section 114 notices have increased council tax by up to 14.99 per cent.

The Government increased the ‘referendum limit’ to 5 per cent for authorities with social care duties in April, with many councils quickly applying the increase.

Cllr Cotton also said in Tuesday’s meeting that as well as raising council tax, proposals to save £149.8 million for 2024/25 were presented to government commissioners on December 1, which included service reductions.

The commissioners, led by Max Caller, have tasked the council with providing a credible plan to plug the £300 million two-year budget gap by January 7, something they said was ‘achievable’.

But responding to Cllr Cotton’s report, they said a ‘huge’ amount of work was still needed and that there was a lack of ‘any early budget work’ to understand how the 2024/25 gap could be addressed.

They said: ‘There remains a huge amount of work to do to both identify robust savings and establish a savings delivery process that is credible.

‘This will need to be undertaken at pace and with a step change in the level of organisational focus and grip.’

Earlier this year, residents living in the shadow of Birmingham‘s Commonwealth Games stadium say the area has been left ‘to rot and go to waste’ amid the council’s bankruptcy woes.

Locals in Perry Barr claimed the costly bid to host last summer’s games has had little benefit to their community despite a staggering £184 million investment. 

Mum-of-two Sandra Wilde, 45, of Perry Barr, said: ‘It’s no wonder the council has gone bankrupt – we should never have hosted the games. It was just a vanity project.

New flats were also built nearby for the athletes’ village but the impact of the Covid-19 pandemic and spiraling costs meant they were not ready on time

Athletes village, which is  adjacent to Perry Park, was meant to house up to 1,000 athletes but was not finished on time and remains empty

Locals Sandra (left) and Kath, both in their 70’s, use the stadium for the gym

A whopping £16 million was spent moving the Perry Barr bus depot 300 metres to make way for the flat development

‘It was all unveiled to great fanfare when behind the scenes they were struggling to balance the books even back then.

‘The area has been left a real mess with people unable to use our local park. You’ve got fences and big boards up everywhere which are strewn with graffiti.

‘It’s attracting antisocial behaviour. If anything the area has got worse not better.

‘They have made empty promises the whole way through – from an athletes’ village which wasn’t even used to a train station design that changed from a state-of-the art place to what looks like a copper garden shed.

‘The council also spent stupid amounts of money on moving a bus depot a few yards down the road – it’s just baffling this has been allowed to happen.’

Birmingham City Council has been contacted for comment.

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