There is a major public accountability crisis emerging at Birmingham City Council (BCC). The equal pay liability, which has led to the proposed fire sale of £500m worth of assets, has yet to be formally audited. Meanwhile, the same auditors have concluded that there is presently “no reliable position” from which to set the 24/25 budget, where £300m of cuts have been mooted. There has been as yet no independent value for money or public interest assessment of either the asset sales or budgetary cuts. And furthermore, there is no independent assurance that these cuts will not simply increase costs somewhere else in the budget. The Council is believed to be at a financial cliff edge. But rushed budgetary cuts and unplanned fire sales would be imprudent before a true financial position is known and the impact of cuts properly assessed.
“No reliable position” from which to set the budget
In March 2022 Birmingham City Council launched a new Oracle IT system. It did not go to plan. Council papers show that it was responsible for a backlog of 70,000 transaction errors between the Council’s cash records and its bank accounts by the end of last year. As of September 2023 this had been reduced to just over 9,000 transaction errors, but still accounted for a net value of over £73m. The Oracle system itself cost something approaching £60m more than was budgeted, with the council incurring £500k per month on manual work-arounds.
The Council finance director confirmed that work to correct these errors was ongoing but would not be ready in time for the current budgetary cycle. The external auditors consequently concluded that:
“The Council is not yet in a position to report full year outturn for FY 2022/23 and is several months from having an auditable set of accounts for FY 2022/23. The Council has been operating during FY 22/23 and 23/24 without an effective budgetary control mechanism in place […] There is no reliable forecast outturn for FY 23/24, or a reliable baseline cost position against which to set the 24/25 budget”
The auditors also highlight major control deficiencies and possible fraud risks over the cash and accounts payable system in the Council; and describe problems related to a “high staff turnover” “high levels of fatigue” and a “deep dissatisfaction with the senior management culture”.
In addition to the Council having no baseline budget position for either 23/24 or 24/25, the auditors also noted delays in the assessment of the equal pay liability, such that the actual extent will not now be known until FY 24/25. Importantly, this will be after the City has been forced to push through £500m of asset sales and the largest in-year budget cut any authority has ever made.
No independent value for money or impact assessment of the proposed budget cuts or asset sales
In addition to the above, the latest papers show that there has been no independent value for money or impact assessment on the proposed cuts and assets sales. In our recent report we raised concerns that further budget cuts, following over a decade of austerity, would create serious business continuity risks across children’s services and adult social care. For example, a recent internal audit report identified an £11m overspend in relation to temporary accommodation that could be directly traced to the various cuts to early intervention, community charities, mental health services, youth centres, and so on.
Jane Haynes, writing for the Birmingham Mail, revealed that the latest proposals will include cuts to the city’s youth service, early help services for families, and transport for disabled and vulnerable children to and from school or college. They will also see the City’s funding for Birmingham Children’s Trust, set up after “widespread and serious failures” were found by Ofsted that left children and young people at risk of harm, will now be cut by £20m. Similarly, it is less than two years since the Council accepted findings from a government report that concluded that there were “serious and sustained breakdown in the services for vulnerable children and their families”, which included home to school transport services that are now set to be cut.
In addition to the risk that cuts will affect BCCs ability to meet their statutory service obligations, it is far from clear that these cuts will achieve the stated aim of allowing the council to balance the books. The aforementioned Oracle programme shows how attempts to cut costs in the short term, produce far larger costs further down the road. The £1.7m cut to the Oracle programme in the 2019/20 budget resulted in 40 staff being removed from the implementation team by 2022/23. Three years later, there has been a £60m overspend involving convoluted work-arounds, due to a significantly understaffed implementation team.
There are material risks that these new cuts will lead to potentially unlawful cuts to statutory services. The city-wide consultation has been minimal – consisting so far of a survey asking residents to rank Council services by order of priority, with no detail about the proposed cuts or asset sales. The finance team have also repeatedly missed crucial deadlines. It now looks nigh on impossible that a meaningful statutory consultation on the 24/25 budget will take place. We would therefore recommend that the DLUHC and the Commissioners to support the Council in stepping back from what was described by the Council’s Audit Committee as a financial “cliff edge”.
Time is tight: the Council has delayed the release of the full detail of the proposed cuts, which will now only be released as part of the Cabinet papers for their meeting on 27th February. The Council will then vote on the proposals on 5th March. Getting these accountability questions resolved before voting on cuts is absolutely paramount.