Michael Gove’s Commissioners set to press ahead with record £149m cuts despite pensions windfall and cash injection from central government.
What new money is Birmingham set to receive?
In December 2024, Council leader John Cotton praised the new Labour Government for providing a “lifeline” to local Councils, as they announced a £2bn funding package for English local authorities. The new money would represent a 3.5% real term increase and, speaking to the Birmingham Mail, Council Leader Cotton stated that this “demonstrates the difference that a Labour Government makes” after “14 years of neglect”.
Recent Council papers now show in more detail how this new money affects Birmingham. The package will add around £68m to the Council’s net income, made up of an additional £39.3m “recovery grant”, an additional £11.1m ringfenced grant for Children’s Social Care, and a £17.7m extension to homelessness grants.
In addition to the new Government funding this year, from 2026/27 the Council is also set to receive a pensions windfall following the upcoming revaluation of the West Midlands pension scheme. Thought to be worth around £20m to £30m per year. It is also set to benefit in 2026/27 from the Government’s new multi-year financial settlement, designed to reverse previous cuts that disproportionately hit more deprived authorities.
Meanwhile, the ongoing costs of the Council’s new Oracle IT system are also set to wind down from 2026/27. Following a costly implementation that required the Council to call on an army of consultants and temporary IT staff to clear a backlog of tens of thousands of transaction errors in its accounting system, the Council incurred an astonishing £131m costs against an initial £19m budget. It also incurred wide ranging indirect costs linked to the failure, most notably via an inability to effectively collect Council Tax and Business Rate debt.
It is hoped that the fixes to Oracle will finally allow the Council to scale down the costs of the new system, while being able to more effectively monitor budgets and prepare accurate accounts. Something they’ve not been able to do since the system went live in April 2022.
Overall, a significant proportion of the Council’s short-term budget deficits for 2025/26 look set to reverse out by 2026/27 without the need for a major austerity budget this year.
So why are the £149m cuts in 2025/26 still going ahead?
Despite the new money from central Government, and the longer-term boost to the Council’s finances from 2026/27, budget papers for the upcoming 2025/26 budget confirm that the second tranche of the original £300m cuts have now “passed due diligence”. Meaning they are set to go ahead in full.
This will add £149m of new cuts to the previous cuts package, also coming to £149m, announced last year. The cuts will include around 300 additional redundancies (paid for via a £100m redundancy reserve) and further wide-ranging cuts to frontline services, including £43m cuts to adult social care and £39m from children’s services.
The council is also set to increase council tax by 7.5% – a figure that was reduced from 9.99% following central government intervention to cap the rise.
In Birmingham, the Government’s additional recovery grant, children’s social care grant, and homelessness prevention grant have therefore by-passed service delivery, making not a dent in the Commissioner’s initial savings plans. The latest papers detail how the Commissioners instead plan to use this new money to close a previously planned-for deficit of £47m in 2025/26 and then to use the remaining surplus to pay down the Council’s long-term debt.
This decision has strong echoes of the Commissioner’s recent insistence on a “fire sale” of assets, amounting to £750m, going ahead despite the £760m equal pay liability that originally underpinned the Council’s “capitalisation direction” having since been settled for a much lower sum (reportedly around £250m). With the fire sale leading to costly losses on the sale of assets, including a reported £300m loss on the sale of the Perry Barr estate, and a £30m loss on Bordesley Park.
Despite this prior form, cutting such crucial statutory services – that we know from prior research will cost lives and devastate communities – in order to run a surplus, when the Council had the statutory headroom to run a managed deficit until the funding situation improves, seems shortsighted in the extreme.
Growing evidence of a failed intervention
As we previously highlighted, and as has now been widely confirmed, the section 114 notice that “bankrupted” the Council was issued on the wrong basis – with the notice incorrectly citing a £760m equal pay liability as the primary cause of the Council’s financial difficulties.
Subsequent to this, the then Secretary of State Michael Gove imposed central Government Commissioners without the usual 3-month best value assessment. Within weeks, they outlined their mission to deliver £300m cuts and £750m of asset sales.
As we pointed out at the time, this approach was irresponsible, provided poor value for money and would undermine crucial statutory services. Illustrating the lack of information available to the Commissioners at that time was a January 2024 report into the disastrous launch of the new Oracle IT system, in which the auditors stated that “no budget monitoring reports [were] provided to Directorates during 2022-23 or 2023-24” and a revenue outturn report (the report confirming the Councils income and expenditure) could not be produced. As a result “reliance could not be placed on the most basic financial information from the system”.
In short, the Council had no idea what their underlying surplus or deficit position really was and did not have the capacity to properly impact assess the Commissioners’ plans. More than a year later these plans have still not been revised.
As we analyzed in our recent report (pg.37), such deep cuts to crucial preventative services could well have the effect of driving up demand and creating unaccounted for knock on costs. The LGA, for example, provide comprehensive evidence of how stable investment in children and young people, SEND services, public health, housing and homelessness, debt support, culture and the arts, and adult social care all provide strong financial returns on 5-year time horizons. Conversely, steep cuts can have the effect of fragmenting services, driving up demand, and triggering costly judicial reviews, appeal tribunals, and industrial action.
This was, predictably, what the Council then experienced through 2024, with local media reporting that additional unanticipated cost pressures were adding £50m to the Council’s cost base due to rising demand in Children’s Services and Adult Social Care (precisely the areas facing the biggest cuts) and continued increases in temporary B&B accommodation for homeless families. The trade union Unite have also since announced a significant period of strike action linked to job losses.
Austerity, it seems, can be an expensive business.
The alternative approach would have been for the Council to instead focus their efforts on establishing their financial position following the intervention, focusing initial savings on demonstrable efficiencies rather than service cuts, while working with national government to restructure the Council’s mounting debt.
In theory, the 4-year statutory intervention and the government’s “capitalisation direction” (which allowed the Council to run temporary deficits) should have provided the leeway the Council needed to set itself on a sustainable footing. Noting – as we have repeatedly highlighted and has now been borne out – that the wider funding environment would likely improve in the medium-term.
What next?
The Commissioners are now all but set to push through the upcoming £149m of cuts. These cuts have once again gone through no public consultation and, as was confirmed in recent meetings, are not being impact assessed in terms of demand pressures or quality of service.
Drawing on the 2024/25 experience, we can expect a further cost spiral effect, possibly as much as a further £50m (as we saw last year). In addition to the financial consequences, however, the cuts will likely also have operational implications as crucial life-saving services become fragmented, as well as wider impacts on the NHS, education, and local economy.
In the immediate term, it is still possible, and relatively straightforward, for the Council to maintain the previously planned-for £47m deficit in 2025/26 – using this money to remove proposals that impact on frontline delivery. Running this deficit, together with the new money from central government, should allow the Council to remove most if not all cuts affecting frontline services from the current proposals.
This would be money well spent, as it would allow the Council to assess which of the cuts are most likely to lead to knock-on costs in the following year and which cuts would be the most damaging to residents and service users, rather than having their hands tied by arbitrary top-down savings targets.
Looking ahead to 2026/27, it is in this year that the Council should try to assess what its structural surplus/deficit position then is. Building the new pension contributions, the Government’s medium term funding settlement, and the reduced Oracle costs into a proper medium-term financial plan.
The alternative would be to more or less permanently trap the Council in a low-spend high-debt scenario in which the city is left paying for the Oracle IT failure for decades to come. This will leave the city poorer, less healthy, with a larger proportion of the population needing support. It will damage economic growth, particularly with respect to cuts to the arts and education, and make the city a dirtier (see the extensive cuts to street cleaning, bin collections, and environmental health), less well maintained, and ultimately less attractive place to live and invest.
The choice, ultimately, is a simple one. Do we invest in the future of Birmingham or do we continue with failed austerity policies of the past 15 years?
[1] On top of this amount, the Council will also receive an additional £11.7m Extended Provider Responsibility funding to cover the costs of imported packaging. Central government will also cover the cost of upcoming increases to national insurance. The package adds around £100m to Birmingham’s total income, with at least £68m of that adding to the Council’s net spending power.