ANALYSIS: Birmingham, Section 114 and recruitment

When Birmingham City Council declared itself effectively bankrupt on 5 September the shockwaves weren’t as big as they might have been.

The local authority joined one of a small but growing group that have taken the very serious step of issuing a Section 114 notice, a legal mechanism that effectively freezes all new spending. 

What is notable in Birmingham’s case is that it is Europe’s largest local authority. The city also has a long and proud history of excellence in city government stretching back to the Victorian age. In the 19th century, the West Midlands city was one of the first to clear slums and build good quality council housing. It pioneered street lighting, expanded free education, established a university and a free city museum and art gallery. Birmingham became known as the ‘best governed city in the world’ and much of that go-getting spirit has endured.

The council’s website trumpets a “relentless spirit and ambition” describing a creative, dynamic place: “Our appetite for progression is boundless.”

The recent admission that it is unable to balance its budget has been a humiliating revelation.

At the heart of Birmingham’s financial problems is an £87m budget gap and an ongoing liability for equal pay payouts of between £650m and £760m. These are payments made to settle historic inequalities in pay between men and women who worked at the council and are accruing at a rate of £5m to £14m per month. 

But wider factors are also at play. Local government experts highlight the very challenging financial conditions UK councils have been operating in, where rising demand for services, particularly child and adult social care, have been coupled with increasing cuts to funding.

“Many in the sector are rightly concerned that we are approaching a watershed moment for local government, with the risk of Section 114 notices becoming a more regular occurrence,” says Iain Murray, director of public financial management at the Chartered Institute of Public Finance and Accountancy (CIPFA). 

Councils are required by law to deliver a range of services from waste and recycling to child safeguarding and these requirements continue irrespective of a Section 114 notice so it may be that little changes in the short term.

"However, any new spending would have to be approved by the director of finance and be subject to a robust and rigorous mechanism,” explains Joanne Pitt, local government policy manager at CIPFA. 

“It’s important to recognise that the strict spending restrictions placed after a Section 114 will have implications across the council.”

Matt Masters is a business director at recruiter Michael Page, specialising in interim recruitment to local government. Speaking to Recruiter in a personal capacity, Masters, who hosts a podcast called The Truth About Local Government, predicts “a pause in permanent recruitment campaigns as Birmingham recalibrate their budgets”.

The council has taken pains to ensure its employees that they will continue to be paid and that existing contracts will be honoured. With almost 12,500 employees, it is a major employer in the city, with a diverse workforce reflecting the breadth of services the council has to provide.

Despite this, many council employees are nervous. Matt Collingwood, managing director of VIQU, a specialist IT recruiter based in Birmingham, highlights a staggering 650% increase in Birmingham council employees posting their CVs to local job boards in the week since the Section 114 notice was issued.

“We often find that when bad news is released about an [organisation’s] stability, some employees will start looking quickly,” he tells Recruiter. “Redundancies, financial challenges and general poor outlook… can result in less opportunities for promotion, pay rises and personal development.”

Reputational damage is also something highlighted by Gordon McFarlane, president of the Public Services People Managers Association (PPMA), which represents public sector HR professionals. “The impact of reputational damage should not be underestimated – both on existing staff who are working hard to keep services running, but also the ability to attract new staff,” he says. “Recruitment in a tough market could get a whole lot tougher. For Birmingham, this is further complicated as it’s combined with their launch of a council-wide, voluntary resignation scheme, which will need to be carefully managed alongside the recruitment challenges.”

Collingwood calls the news about Birmingham City Council “grim”.

He points to the fact that the city has the youngest population in Europe, with under-25s making up almost 40% of the population. “We’ve helped lots of clients launch operations in Birmingham as rent and salaries are lower than in places like London but I’m not sure how seriously they will take us now.”

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