DLUHC prepares to send commissioners into ‘bankrupt’ Birmingham

Gove appoints local government turnaround specialist Max Caller to lead intervention
The Council House in Birmingham Photo: Google Maps

By Jim Dunton

20 Sep 2023

The Department for Levelling Up, Housing and Communities has set out plans to send commissioners into Birmingham City Council after the authority declared it is unable to balance its current budget because of a projected £87m in-year shortfall.

DLUHC’s intervention proposals come two weeks after Birmingham issued a  Section 114 notice, the local government equivalent of a bankruptcy declaration. Birmingham cited an outstanding equal pay settlement of up to £760m – which it said was growing at a rate of £5m-£14m a month – as its main financial problem. However the ballooning cost of its Oracle IT system is another significant financial headache for the city.

Levelling up secretary Michael Gove yesterday told MPs he plans to appoint local-government turnaround specialist Max Caller as lead commissioner for the city council but had yet to finalise other team members.

Gove also published a letter to Birmingham’s chief executive officer, Deborah Cadman, detailing DLUHC’s planned intervention at the city council – and offering its senior leadership team five working days to come back with views on the plan.

Gove told MPs the need to act in Birmingham was “pressing”.

“I am satisfied that Birmingham City Council is failing to comply with its best-value duty,” he said. “I do not take these decisions lightly.”

The secretary of state said the late Lord Bob Kerslake’s 2014 review of corporate governance at Birmingham had “highlighted a culture of sweeping problems under the carpet or blaming them on others rather than tackling them head-on”.

“The problems Lord Kerslake identified have, unfortunately, endured,” Gove said.

He added that independent auditors Grant Thornton had assessed Birmingham’s estimated equal pay liabilities at more than the council’s £760m figure and potentially “much higher”.

Gove said it this meant Birmingham’s 2020-21 and 2021-22 accounts had “materially misstated” costs related to equal pay settlements and the council did not have reserves to meet the liabilities due for those years.

He said that resolving the “botched” implementation of Oracle was estimated at £100m. Its original projected cost was £19m.

“The scale and nature of the failings at the council, its precarious financial situation and its failure to provide sufficient assurance to government that it is taking adequate action to address these issues are all highly concerning,” Gove said.

“Central government is prepared to extend additional financial support to the city. But our commissioners, I am sure, will be confronting the political leaders of Birmingham City Council with some necessarily very difficult decisions and I hope that we can take them in a constructive spirit together.”

Under DLUHC’s package of proposals, the team of commissioners would provide advice and challenge the council. They would also have powers to make decisions directly, if necessary.

Powers conferred on them under the directions would relate to governance, scrutiny of strategic decision making, finance and senior appointments.

Gove told MPs: “My hope is that the commissioners would not need to use all of these powers. Nonetheless, they must – in my view – have the necessary mandate to deliver the reforms that are required.”

Under the proposed direction, Birmingham City Council would also be required to undertake specific actions, including the preparation and implementation of an improvement plan to return the authority to a sustainable financial footing.

Birmingham would be given six months to produce the plan, however DLUHC’s letter to the authority proposes that the directions underpinning the government intervention should remain in place for five years.

It states: “The authority’s situation is severe, and the improvement and recovery journey is likely to take a number of years.”

Earlier this year Woking Borough Council issued a Section 114 notice declaring an inability to balance its books. The Surrey authority’s problems stem from property investments including residential skyscrapers in the town centre and an estate redevelopment scheme.

Other councils issuing S114 notices in recent years have included Thurrock, Croydon and Slough.

In June, members of parliament’s Public Accounts Committee warned that backlogs in local government audit were running at “unacceptably high” levels and stopping the alarm being raised early enough where problems existed in councils’ finances.

Max Caller, who Gove told MPs had agreed to serve as lead commissioner in Birmingham, previously led the government’s intervention at Slough. He also served as a commissioner at the London Borough of Tower Hamlets and acted as lead inspector for “best value” inspections at Liverpool City Council and Northamptonshire County Council.

He was involved in a previous non-statutory intervention at Birmingham City Council in 2019.

Read the most recent articles written by Jim Dunton - Prisons crisis: Probation Service to get 1,000 extra trainee officers

Share this page