COUNCILS IN CRISIS: A report from forensic auditors has raised questions about one council’s bankruptcy that could persuade others, including cash-strapped Croydon, to ask whether they are getting proper analysis of their struggling finances
An academic report into the parlous state of finances at the largest local authority in the country has suggested that the Tory Government and auditors Grant Thornton have serious questions to answer over the handling of Birmingham City Council’s financial collapse.
One senior Labour councillor has described the treatment of Birmingham’s council as “effectively a punishment approach to this city rather than a rebuilding”, as forensic accountants at Sheffield University have joined calls for an independent public inquiry after finding a “catalogue of problems and errors” surrounding the city’s de facto bankruptcy last September.
Grant Thornton has issued a robust denial of any wrongdoing by their auditors.
But the essential findings of a report from Sheffield University’s Audit Reform Lab suggest that Birmingham’s liabilities in an equal pay dispute may have been over-stated three-fold from the £760million that prompted the then Tory Government minister, Michael Gove, to take emergency action.
Catastrophe: was crashing councils a political choice by Michael Gove?
Gove, when he was Levelling Up Secretary, refused all calls for a public inquiry into the parlous state of dozens of local councils in England, including Croydon.
The questions raised over Birmingham by the Audit Reform Lab may prompt other local authorities, including those such as Croydon who have already issued Section 114 notices, and those on the brink of doing so, to take a very close look at the figures involved.
Croydon Council issued its first of three S114 notices in November 2020, following a damning Report in the Public Interest from Grant Thornton over the manner in which the council’s finances were being mismanaged.
Grant Thornton remains Croydon Council’s external auditors. But the council has not had a fully signed-off set of annual accounts from Grant Thornton since 2019.
Parliament’s Public Accounts Committee warned in June 2023 that a national audit backlog was hindering the accountability for £100billion of local government spending. It said more “horror stories” like the insolvencies in recent years of Croydon, Slough, Thurrock and Woking councils could be going undetected as a result.
Croydon is among 61 councils in England that have not been audited since 2019-2020. There are 22 councils that have been unaudited since 2018-2019 and 10 since 2017-2018.
Carve up: Croydon Mayor Jason Perry claimed he discovered ‘legacy issues’
In 2022, Croydon’s then newly-elected Conservative Mayor, Jason Perry, began his own “opening the books” exercise at the Town Hall, and claimed that, despite two years of careful audits and investigators poring over the council’s books, that they uncovered additional “legacy issues”.
Croydon’s third S114 notice was issued by Mayor Perry in November 2022. Mayor Perry has since increased Council Tax by 21%, while relying on an additional bail-out from government – a “capitalisation direction” – of £38million to be able to balance the books.
The capitalisation direction will require Croydon to sell-off £38million-worth of assets – which may explain why Mayor Perry is so keen to close four public libraries, and continues to put pressure on two council-run nursery schools.
Some Katharine Street insiders suggest that as well as imposing 14 years of austerity on local councils, the previous Conservative-led Government has used financial problems at local authorities to force them to sell off billions of pounds worth of public assets.
“Birmingham is currently in the throes of a drastic restructuring exercise imposed by Westminster,” the Financial Times has reported.
“Birmingham City Council, the largest in Europe, was the most high-profile of a string of local authorities to declare its inability to fulfil a legal responsibility to balance its budget under the previous Conservative government.
“The council has been obliged to start a £750million sale of assets and impose some of the most swingeing cuts to services in local government history, worth at least £300million.”
At the time of Birmingham’s collapse, then Levelling Up secretary Michael Gove said the primary cause of the bankruptcy was the city council’s £760million equal pay liability, a figure that Grant Thornton had referenced in its statutory recommendations using the council’s estimate but — crucially — had not audited.
The FT says: “Much of the disagreement around the collapse of the council rests on this accounting figure, which relates to potential back pay over alleged differences in the treatment of men and women.
In the pink: how the FT reported on Birmingham’s unbalanced budgets yesterday
“The ARL report found that the city council’s woes were initially attributed to ‘a prematurely disclosed and potentially overstated equal pay liability’ of £760million, a figure council officers had adjusted from an earlier figure of £121million.”
The Audit Reform Lab’s report was commissioned by the GMB, Unison and Unite unions.
In its response to the ARL report, Grant Thornton said: “Both officers and commissioners have confirmed that this [£760million] is the best estimate available of the council’s liability on the available information.”
Grant Thornton said that the Audit Reform Lab’s report “presents significantly inaccurate and misleading information and inferences as to our role as the council’s auditors”.
Birmingham’s problems had been compounded by a disastrous IT upgrade, which resulted in tens of thousands of cash transactions going untraced.
Grant Thornton says that its auditing of Birmingham’s figures remains ongoing.
James Brackley, lead author of the report, said: “Very little of the deficits relate to the equal pay liability.”
The report says that measures imposed on Birmingham by the Tory government are likely to lead to “a breach of the council’s statutory duties” to provide essential services, and “contribute to cost spirals and worsening outcomes” the people living in the city.
Pay more, get less: Birmingham City Hall, where Council Tax is being hiked by 20% over two years
Brackley recommends giving the council longer to balance the books and “stop the absurd situation of the council being forced to make permanent cuts to services and sell revenue-generating assets”.
Max Caller, the chief commissioner appointed by the government to oversee the running of the council, has also said publicly that the £760million equal pay settlement figure is an over-estimate, and that the real liability may be closer to £250million. This may all be too late, however, to halt what the FT has described as “the most far-reaching cuts and asset sales in local government history”.
The GMB and Unison unions, who have been handling equal pay claims by the council’s female workforce, agree. A Unison 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 one million people, now forced to cope with much-reduced services,” they added.
Fred Grindrod, Labour’s chair of Birmingham’s 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”.
It’s an observation which burghers from other boroughs may find very familiar.
Read more: Cummings’ budget rejected before his big Newsnight moment
Read more: You can depend on Croydon Labour: they always let you down
Read more: Perry pleads poverty when he has more Council Tax than ever
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ROTTEN BOROUGH AWARDS: In January 2024, Croydon was named among the country’s rottenest boroughs for a SEVENTH successive year in the annual round-up of civic cock-ups in Private Eye magazine
Perry colluded with the last government in punishing Croydon instead of fighting for a better deal.
Despite the recent General Election, he’s still pursuing that same policy.
Grant Thornton have been fined millions of pounds by the Financial Reporting Council for mucking up audits of, amongst others, Patisserie Valerie (causing the company to go bust, with a fraud trial pending), Interserve (virtually gone) and Assetco, who fought back and won substantial damages for GT’s negligence “of the utmost gravity”.
They’re not infallible. It’s a pity our dopy Mayor hasn’t woken up to that fact, nor considered who appointed them in the first place
Let’s not forget Birmingham’s IT disaster – the Oracle computer system that never worked and wasted £100 million of residents’ money
Correction. It’s now £216.5 million according to Computer Weekly