Birmingham Bankrupt' As Councils Suffer Cash Crisis

Britain's biggest local authority joins growing list in financial trouble

- Heather Stewart, Jessica Murray

The crisis in local authorities was laid bare yesterday as Birmingham city council in effect declared itself bankrupt, with experts warning that other councils across the UK were now operating "hand to mouth".

The Labour-led administration in Birmingham made the dramatic announcement that the council had issued a section 114 notice, signalling that it does not have the resources to balance its books.

Woking, Croydon and Thurrock are among councils to have made similar announcements recently after botched investment projects and deep funding cuts. But the spread of the trouble to the UK's largest council, which hosted last summer's Commonwealth Games, is likely to intensify pressure on the government over the legacy of 13 years of fiscal austerity.

The notice means all but essential spending will halt in order to protect core services. It follows an estimate in July that equal pay claims by its female staff could cost it up to £760m.

Jonathan Carr-West, the chief executive of the Local Government Information Unit, a thinktank, said Birmingham's decision raised questions about governance at the council but was also a symptom of wider financial challenges facing local authorities.

"The LGIU has been supporting councils for 40 years, but our members tell us that they are experiencing the most acute crisis they can remember," he said. "Central government has kept councils living from hand to mouth and from year to year for far too long. Birmingham is the biggest council to fail so far, but unless something changes, it won't be the last."

The Local Government Association estimates councils face a £3bn funding gap over the next two years to maintain services at current levels.