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Cost of Birmingham council equal-pay claim probably far lower than £760mn

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The equal pay claim that tipped Birmingham city council into bankruptcy last year is probably much smaller than the original £650mn-£760mn estimate, according to the man parachuted in by Westminster to run Europe’s largest local authority and the unions representing claimants.

Both the GMB and Unison unions and Max Caller, the commissioner appointed by Michael Gove, secretary of state for levelling up, housing and communities to oversee the council, said the original estimate far exceeded any likely payout. The real liability may be closer to £250mn.

Based on the higher projection, however, Birmingham has already agreed to carry out some of the most far-reaching cuts and asset sales in local government history.

Caller told the FT that Grant Thornton, the auditors, had insisted on the maximum provision “because of the way the council had managed its accounts in the past”. He said if the claims were settled for £250mn, that would be a “good deal” for the council.

“The £760mn is a provision in the accounts . . . it is probably a worst-case position because when it was calculated there was no prospect of a negotiated process between the council and the trade unions to re-evaluate the jobs and settle the claims,” he said.

The government has given Birmingham two years to balance its books and close a forecast £300mn deficit.

The cuts involved, and the sale of assets worth £750mn, depended in part on the size of the pay claim, which is under review by Grant Thornton. Birmingham is also on the hook for an overspend of some £100mn on launching new software and, according to Caller, a “failure to deliver savings targets in the past”.

The auditors used the higher figure last September in their recommendations when the council issued a Section 114 notice declaring itself in effect bankrupt.  

Grant Thornton said: “The estimate [of £760mn] was provided by council officers. It is based on an understanding of likely claims at the reporting date. We have reported clearly that the figure has not been audited by ourselves.”

Birmingham’s difficulties in settling the dispute have been compounded by the failed launch in 2022 of new Oracle IT software, which left finance officers flying blind and without sight of the accounts, according to council insiders.  

Financial transactions were still being recorded manually on ledgers and access to pay data was unreliable, they said, because of continuing problems with the introduction of the software.   

Some elected members of the council are now up in arms. They argue that the savings imposed on Birmingham are decimating services and will lead to the sale of revenue-generating assets that can never be recovered.

This is partly, they argue, on the basis of a huge leap in estimates for the equal pay liability, from £121mn in 2021, that has never been fully explained either by the auditors or council officials and before a value for money review has been concluded.

Fred Grindrod, Labour chair of the council audit committee, called in a recent speech for a public inquiry, saying that the agenda had been set “on an incredibly shaky foundation and is effectively a punishment approach to this city rather than a rebuilding”.

The pay claims go back to 2017 when the council concluded what Caller described as a “botched deal” with refuse collectors to end strike action.

The deal, according to Rhea Wolfson, head of industrial relations at the GMB union, inflated the job evaluation of striking male workers in a way that was discriminatory to women in equivalent roles. That blunder was compounded when the council introduced other favourable conditions for refuse collectors during the pandemic.

However, Wolfson said £760mn was an “extreme figure”. The GMB estimates, based on 5,500 claimants, that the liability is in the region of £250mn. This would also depend on the council quickly coming to a settlement to avoid accruing further liabilities and interest, Wolfson said.

Unison, too, said any eventual payout would probably be much lower. A spokesperson said: “The council should have put its house in order before making cuts, selling off prized assets and drastically raising council tax.”

“The aftermath of this financial chaos is affecting the lives of more than a million people, now forced to cope with much-reduced services,” they added.

The council said: “In early 2023, there were a variety of estimates of equal pay liability, which were wide-ranging and clearly needed further work . . . Since then the council has worked tirelessly with trade unions and the commissioners to agree a job evaluation scheme that will help to end the equal pay liability once and for all.”

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