Birmingham City Council

With your permission, Mr Deputy Speaker, I would like to make a statement about Birmingham City Council.

Birmingham is a great city with a wonderful, diverse, creative and enterprising population. It has real economic, cultural and educational strengths. But Birmingham City Council has not served the citizens of that great city as it should have. For years now, the city has suffered as the council has failed to grip underperformance. Poor leadership, weak governance, woeful mismanagement of employee relations and ineffective service delivery have harmed the city. Senior leaders—both elected members and officers—have come and gone, but the one constant has been a failure to deliver for residents who deserve better. I believe strongly in local government, local decision making and devolution of power to local communities. But I also believe that when failures in local government occur, we must act. As we devolve more power to local government overall, we must demand sharper accountability. The need for action in Birmingham is pressing.

On 5 September the council’s chief financial officer issued a section 114 notice, which set out the full gravity of its financial situation. As a result, and as I will set out to the House, I am satisfied that Birmingham City Council is failing to comply with its best value duty. In line with the Local Government Act 1999, therefore, I can announce that I am today writing to the council to set out my proposal to intervene and to appoint commissioners, and that I intend to launch a local inquiry in due course. I do not take those decisions lightly, but it is imperative to protect the interests of the residents and taxpayers of Birmingham, and to provide ongoing assurance to the whole local government sector. Copies of the letter have been provided to the Vote Office, and will be deposited in the House of Commons Library and published on gov.uk.

It may be helpful to the House if I outline how we in Government arrived at this position. In 2014, the independent Kerslake report, commissioned after the “Trojan horse” investigation into a number of Birmingham schools, found that successive administrations had failed the city. It warned that the council lacked a clear vision, had failed to tackle deep-rooted problems such as the low level of skills, and was not doing enough to provide consistently good quality services. The report’s author, the late Lord Kerslake, also 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. In April 2023, the Minister for Local Government, the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for North East Derbyshire (Lee Rowley) asked the then council leader, Councillor Ian Ward, to commission an independent governance review. He was prompted to act after governance and service delivery concerns were raised by three independent sources: the local government and social care ombudsman, the housing ombudsman, and the Department for Education’s commissioner for special educational needs and disability at the council. The scope of the review was then extended to include two further serious issues which subsequently came to light: the flawed implementation of a new financial ledger system, Oracle; and the council’s handling of its significant equal pay liabilities. The council’s response to both issues has caused concern, highlighting significant shortcomings in its governance arrangements, and in its ability to identify and resolve areas of weakness. Last month, my hon. Friend wrote again to the leader, seeking assurances about whether the council was compliant with its best value duty in relation to decisions on equal pay and Oracle. To date, there has been no response.

We understand that a number of factors led the chief financial officer of the council to issue the section 114 notice last Tuesday, as laid out in the report. These included concerns raised by the external auditors, Grant Thornton, around the provisions for equal pay in prior year accounts. The independent auditor’s assessment was that the revised estimated equal pay liability is likely to be more than £760 million, and there is a risk it could be much higher. That means, in turn, that the 2020-21 and 2021-22 accounts were materially mis-stated, and that the council did not have sufficient reserves to mitigate the cost of the liability due for those years. In addition to the acute financial position stemming from equal pay, the council is dealing with other difficulties. They include the costs of resolving the botched Oracle implementation, estimated at £100 million.

The residents and businesses of Birmingham deserve better. The intervention package I am proposing today is formed of two complementary parts. First, I propose to issue statutory directions to the council and appoint commissioners to exercise certain functions of the council as required. Secondly, I intend to launch a local inquiry to consider the more fundamental questions around how Birmingham got to this position and options for how it can become a sustainable council moving forward that secures best value for its residents.

I am proposing the transfer, to the commissioners, of the exercise of all functions associated with the council’s governance and scrutiny of strategic decision making, and all functions relating to senior appointments. As part of the proposed direction, the council would, under the oversight of the commissioners, prepare and agree an improvement plan within six months, which would set out the council’s own plans to make the necessary improvements to the whole council to return it to a sustainable financial footing. The commissioners will provide advice and challenge to the council across its operations and will have powers to make decisions directly should they deem that necessary. My hope is that the commissioners would not need to use all those powers. None the less, they must, in my view, have the necessary mandate to deliver the reforms that are required. The commissioners will give me, and I will in turn give the House, a progress report at regular intervals.

I judge that 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. I acknowledge that the council is working with the Local Government Association on its own proposals on improvement, and I have met the leader of the council to hear his plans, but in accordance with the legislation, I have now informed the council that I am minded to implement the package I set out today to protect the interests and services of the people of Birmingham, and have given the council five working days to make representations on the proposals I have set out today.

I am specifically minded to appoint Max Caller, an experienced local government professional and commissioner, to lead the intervention. I will also welcome representations from Members of this House and others who may wish to contribute their views. I thank Birmingham’s MPs for their engagement over the course of the last week, especially my hon. Friend the Member for Birmingham, Northfield (Gary Sambrook), who has been particularly closely engaged with the issue throughout.

It is important that we all get to the bottom of how we found ourselves in this position. That is why, as well as sending in commissioners, I am today making it clear that we need a local inquiry that can look at all the deep questions, including by assessing the council’s ongoing management of issues identified in the Kerslake review in 2014 and the subsequent non-statutory intervention. We will consider options for how Birmingham can improve in the future. I should make it clear that everything I am saying today is not a reflection on the many hard-working staff at Birmingham City Council who continue to deliver essential frontline services for Birmingham residents.

Birmingham is not the only council where we have seen significant local failure. There have been problems in recent times at Liverpool, Sandwell, Slough, Nottingham, Thurrock, Woking and Croydon. The Government have not hesitated to act where poor decision making and governance have been identified. The newly established Office for Local Government, our performance body for England, will have an important role to play in future where local authorities are identified as being at risk of potential failure. It will bring council leaders together with others in local government to explore problems in more detail.

Tougher scrutiny is vital when more decision making and budgets are passing from central Government into the hands of local politicians and officials. When local leaders fail, it is citizens who are let down—whose rubbish is not collected, whose libraries cannot open and whose vulnerable people are not adequately protected. Birmingham’s record is of ineffective, inefficient and unaccountable local government, despite our best efforts and significant support. That needs to change. I will take whatever steps are necessary to uphold the good name of local government and to protect the residents of that great city. I commend this statement to the House.

I thank the Secretary of State for the advance copy of his statement today. It has been a while since we faced each other: 804 days, to be exact. A lot has changed since then. We are on our third Prime Minister, our fourth Chancellor and, of course, our sixth different Minister for Housing. They have crashed the economy, families face the worst cost of living for a generation, and mortgage rates have increased nearly fivefold since our last meeting. But one thing has not changed: local government has been pushed to the brink. Birmingham is just the biggest, latest example.

This is a deeply worrying time for people in the city. The issues facing the council are difficult and complex, and administrations of all three major political parties have grappled with them in the years since they emerged. Since May, the new leadership in Birmingham have been working urgently on this issue and have been clear that they will take responsibility for tackling the problems facing their city, but they can only make that progress if the Secretary of State treats them as partners, and not as a political football.

I welcome the comments the Secretary of State has laid out today in regard to the action and support he will give Birmingham, but can he assure us that the commissioners will work with the city’s elected representatives and leadership to tackle these problems together? Is his Department considering a similar approach to other struggling councils? Will his officials be taking a deep dive into the areas he mentioned in his statement?

In Birmingham’s case, the Secretary of State mentioned the large equal pay settlement as the straw that broke the camel’s back, but he also told us that governance and service delivery concerns were raised by three independent sources: the local government and social ombudsman, the housing ombudsman and the Department for Education’s commissioner for special educational needs and disability. That came after Lord Kerslake’s review, which found that successive administrations had failed the city. Yet he provided no support until the section 114 notice. Why does it take that for the Government to take action on this scale?

It is a great pleasure to be reunited with the right hon. Lady; those 800 days apart seemed much longer. We have certain things in common—both of us have been trade union organisers in the past—but she has been much more successful in internal party elections than I have ever been, so I do have a lot to learn from her. Nevertheless, I must politely remind her that while in my statement I was, I hope, careful and scrupulous in making clear that responsibility goes back quite some time in Birmingham, and responsibility does need to be shared between elected members and officials, I did not mention anything specifically or explicitly party political, because I believe it is vital that we work together across parties and across political traditions to deal with this issue.

Given that the right hon. Lady did mention the party politics of this, I think it important for us to recognise that the intervention in Birmingham, and our interventions in Sandwell and Liverpool, have all been interventions in Labour-led local authorities in which comprehensive mismanagement extended back over years. It is simply not good enough to say that Birmingham has not received the support that it needed. Birmingham has a core spending power of £1,202.4 million. That is a 10.6% increase in the last year, and a 31.8% increase since 2015-16.

Labour local authorities have been supported with funding, and also supported with the help of West Midlands Combined Authority. There is a striking factor in the west midlands: why is it that Labour Sandwell and Birmingham are failing, while the Conservative leadership of Andy Street has seen the delivery of record investment and record house building? If people want to draw political lessons from what we have seen in Birmingham, the message is very clear: if you want effective and efficient local government, trust in Conservative leadership, particularly at a time when we need to recognise that a fundamental problem afflicting Birmingham’s finances is an equal-pay problem exacerbated by the actions of trade unions—trade unions which, in many cases, are funding Front-Bench spokesmen for the Labour party. It is vital that Labour politicians use their influence to ensure that we can work together to deal with the problems that that great city faces.

I welcome the statement—it is right that the Secretary of State is taking this decisive action in relation to commissioners so that we can get to the bottom of what has actually happened in Birmingham City Council—but can he give me some reassurance that neighbouring local authorities such as Dudley and Sandwell, and council tax payers, will not be picking up the cost of the failure of the Labour administration in Birmingham? Can he also reassure me that projects relating to transport infrastructure and employment creation and skills will not be put in jeopardy by the failures of that Labour administration?

My hon. Friend makes an important point. Of course, there are real issues for Sandwell as a local authority, which is why we had to intervene there to deal with years of mismanagement, but it is also the case that council tax payers elsewhere in the west midlands must not be on the hook for failures that occurred in Birmingham. We will have some tough decisions to make. Central Government are prepared to extend additional financial support to the city, but our commissioners will, I am sure, be confronting the political leadership of Birmingham City Council with some necessarily difficult decisions, and I hope that we can take them in a constructive spirit together.

The Secretary of State gave a list of councils where section 114 notices had been served and commissioners had been brought in. Perhaps he can confirm that Thurrock, Woking and Northamptonshire are not Labour-controlled councils. He seemed to miss that bit out when he was justifying his attack on some councils on the basis of their being Labour-controlled.

No doubt there have been problems in all these councils, but does the Secretary of State accept there is some overarching responsibility for a Government who delivered austerity to councils—bigger cuts than in any other part of the public sector—and that while by and large local government has managed extremely well, some councils have gone over the edge? Does he also accept that other councils may now be facing the brink? He has an expert unit in his Department advising him. Can he tell us how many councils he thinks are now on the brink of section 114 notices, and what action he will take to help them in advance?

I am always grateful to the Chairman of the Select Committee. I have already pointed out that in my statement I deliberately did not choose to make political points, but given that my wonderful shadow, the right hon. Member for Ashton-under-Lyne (Angela Rayner), did choose to insert some party political points, I thought it only appropriate for me to point out that Liverpool, Sandwell, Slough, Nottingham and Croydon had all been driven to the brink of bankruptcy by Labour leadership. It is important to give that context.

It is also important to say that while I will of course continue to fight for local government finance—and, at the last spending review, I secured the biggest increase for over a decade—it is nevertheless incumbent on elected leaders and officers to continue to deliver services efficiently. That is why our new Office for Local Government will hold councils effectively to account while also highlighting the best practice that is so widespread in local government, and which sees many councils continue to deliver high-quality services without getting into the sort of trouble that Birmingham has got into.

My right hon. Friend will know that, unfortunately, my hon. Friend the Member for Birmingham, Northfield (Gary Sambrook) cannot be here today because of a family matter, but he—like me, and like so many others in Birmingham and the west midlands—wants to make sure that this review in Birmingham is different from some of the reviews that we have seen elsewhere so that we can finally figure out how Labour has repeatedly failed in Birmingham, in order to learn the lessons of the past but, most importantly, to protect local services for the future.

I am grateful to my hon. Friend. We must deepen this inquiry. It is fair to say that it was a Conservative and Liberal Democrat administration that ran Birmingham until 2012, but over the last 11 years there has been a succession of Labour leaders. I do not for a moment move away from the fact that there were ways in which the Conservative-Liberal Democrat administration before 2012 was not performing as it should have been, but this deterioration—particularly when it comes to the issue of equal pay—has occurred on Labour’s watch.

Can I ask two questions of the Secretary of State? First, he mentioned one person he is minded to appoint as commissioner. When will he tell us who else he has in mind? Secondly, will the Secretary of State’s commissioners’ powers to make decisions directly extend to making decisions to raise council tax and to sell off assets belonging to the people of Birmingham?

I am glad that Max Caller has agreed to be lead commissioner, but in the next few days I want to hear directly from Birmingham’s MPs and other representatives about who they believe can act as effective commissioners alongside Max Caller. I am completely open to thoughts and suggestions from hon. Members and others about how we can build the most effective and coherent team. It has sadly been the case in the past with local authorities that have failed, such as Croydon and Slough, that we have needed both to increase council tax in certain circumstances and to dispose of assets, but it is too soon to say what the precise mix of interventions that may be required is. I want to do everything to protect Birmingham’s council tax payers and residents by making sure that services can continue.

I moved back to Birmingham after graduating; I chose to do so in 2007. I am a former president of the chamber of commerce and a former local enterprise partnership director—we have one of the most successful LEPs in the area—and to say that I am disappointed by what has gone on in Birmingham is an understatement, not least because it has had over a decade to get to grips with this issue. Does my right hon. Friend agree, though, that there are two stories in Birmingham? There is the story of the political failure that we are seeing at the council, but there is also the story of the youngest-ever city in Europe thriving, with the largest amount of start-ups outside London, a massive life sciences sector and an advanced manufacturing sector. This success is happening under the leadership of Andy Street. Will my right hon. Friend also confirm that my council, Solihull Council, which has projects with Birmingham, will remain unaffected by what is going on there?

My hon. Friend has had a distinguished career in business and public service in the west midlands. It is right to say, as I sought to do at the beginning of my statement, that Birmingham as a city has so many strengths. We can be proud of its people and of its achievements economically, educationally and in so many other ways. The Commonwealth games showed Birmingham very much at its best. This is a specific problem that relates to the council. It requires focused action, and the support of the West Midlands Combined Authority, of Andy Street and of others will be vital in resolving this situation. There should be no adverse impact on residents in Solihull, and I will continue to work with my hon. Friend and other representatives of Solihull to ensure that that local authority continues to get the support it deserves.

Obviously, this is not a situation that anyone would want to be in. I want to understand exactly how the commissioners will work. While everyone is making party political points, it is actually the people of Birmingham who vote for the council and who have put those people in place. Will the citizens of the city get any intervention in this process? How are their feelings going to be heard, or are they just going to have things done to them by people who, let’s face it, do not live in Birmingham or know what the city is like? I do not know this fella. I believe he worked in Hackney. He does not live in Birmingham. He does not know anything about what the city is like. And the Secretary of State’s praise for Andy Street makes me think that he has never tried to get on the tram in Digbeth. We cannot just have a steamrollering in the city. There has to be some level of accountability also for the commissioners, and I wonder what system that will work on. I have to ask the Secretary of State: what is it about the last 10 years that means he can reel off a list of councils including Thurrock, Northamptonshire and Woking? I believe that his own council is not in cracking shape. What is it about the last 10 years that has meant they have all shown cracks in the roof?

There are several important points there. I have never taken a tram in Digbeth, but I do know that, thanks to Andy Street, there is significant additional investment in Digbeth and that the BBC is moving there. It is thanks to Andy Street that we are seeing business and culture flourishing in the west midlands. Max Caller is a uniquely experienced figure in local government. In Slough, he managed to deal with many of the defects that had occurred under—I am afraid—a Labour administration. Having talked to the hon. Lady and other Birmingham MPs, I am very open to them as Birmingham’s elected representatives co-operating with me to help identify who should join Max as a commissioner. The explicit reason that I am minded to act in this way, and that I have announced only one name, is to get the maximum possible consensus and buy-in for a strong team that can take the steps required. What has happened over the last 10 years? I am afraid we have to look at individual councils and the decision-making within them, and to recognise that there are well-run councils. I shall not name them here, but there are even one or two well-run Labour councils. But it is important to recognise that this is about the quality of local leadership, which, as we devolve more power down, has to rise to the challenge.

Like many colleagues in the west midlands, I seek reassurance that my constituents in Wolverhampton will not be impacted by a knock-on effect through the West Midlands Combined Authority. Does my right hon. Friend agree that hard-working people pay their council tax to get the essentials done, and that Birmingham, which knew it was in financial trouble, spending £1.2 million on trade union facility time last year seems an expense too far for hard-working people?