On September 5, local time, the Birmingham City Council announced that the industrial capital, known as the "workshop of the world", had actually entered bankruptcy. This explosive news not only surprised all walks of life in the UK, but also shocked and speechless people around the world.
Birmingham is the second largest city in the UK in terms of both population and economic size: with a population of more than 1.1 million and a GDP of £31.9 billion in 2021, second only to the capital London. Birmingham is more reminiscent of the birthplace of the modern industrial revolution, where Watt invented the steam engine more than two centuries ago; About 100 years ago, Jaguar, Land Rover and Rolls-Royce, which successively opened their headquarters and factories in the city, earning it the title of "Workshop of the World".
However, the "workshop of the world" that was once the "empire of the sun never sets" is today the seventh local city in the UK to declare bankruptcy since 2020. What's going on in between?
Who "crushed" Birmingham?
The Birmingham City Council issued a statement on the "Article 114 Notice" on the 5th, saying that due to the accumulation of huge debts and a financial gap of up to 87 million pounds, in addition to maintaining public services and other legal obligations to protect vulnerable groups, the local government of Birmingham immediately stopped all new government spending. Once the local government in the UK issues this declaration, it means that it is in a state of substantial bankruptcy.
△Birmingham City Council issued "Section 114 Notice" (picture from the official website of Birmingham City Council)
The last "straw that broke the camel's back" was the Birmingham government paying for past mistakes.
In 2012, the Supreme Court ruled that Birmingham City Council's practice of "unequal pay for equal work" discriminated against 174 employees (most of whom were women, including school teacher assistants, public cleaners and elderly caregivers). These female employees took on job responsibilities traditionally held by men without receiving a corresponding post allowance.
Since then, Birmingham City Council has paid nearly £1.1 billion in claims, according to the BBC. But the liabilities are still £650 million to £760 million, and the liabilities are increasing at a rate of £5 million to £14 million a month, and Birmingham City Council does not have enough money or other means to repay these debts.
△Screenshot of the BBC report
In addition, the deeper reason is that in the context of high inflation, due to the rising cost of living and the pressure of wage increases, many local governments in the UK are facing serious financial difficulties, and Birmingham is just one of the epitome of the country's local governments that cannot make ends meet and are overwhelmed.
According to the Financial Times, a statement issued by Birmingham City Council said: "Like local governments across the country, it is clear that Birmingham City Council faces unprecedented fiscal challenges, ranging from substantial growth in demand for adult social care and substantial cuts in business tax revenues, to rampant inflationary effects. ”
Local people are also worried about their lives.
Birmingham People: As you may know, services have been scaled back in many areas. Including doctors, hospitals, dental services, psychiatric services and more, many services have been scaled back, throughout Birmingham. The government has to address these issues, and I feel that there has been an emergency with a red alert, and the city council and the government must resolve it as soon as possible.
Birmingham people: I don't like the local government, they don't do a lot of things properly. They have reduced the number of police officers, but prices are rising again, and people's lives are difficult. Honestly, they're just wasting their time.
Alex Yip, a member of the Birmingham City Council, also said in an exclusive interview with the main station that the long-term impact of the government shutdown is still unknown, but it is currently difficult to provide services for the elderly and children in need of special education.
The Financial Times reported that Birmingham had announced in August that it faced a budget gap of £87.4 million in 2023-24, rising to £164.8 million by 2024-25.
Birmingham City Council chairman John Cotton said Birmingham was not the only city in financial trouble. He warned that local authorities across the UK would face "a perfect storm".
"A perfect storm" swept through Britain
In the UK, local government bankruptcies have been increasing in recent years, with Birmingham being the seventh UK local government to declare de facto bankruptcy since 2020. Local governments including Thurrock, Croydon, Slough and Northamptonshire have declared de facto bankruptcy, with Croydon City Council filing a third "Notice 114" in November last year.
△Screenshot of the British Sky News report
SIGOMA (SIGOMA), a group of 47 local governments, believes that at least 26 local governments in the poorest areas of the UK are at risk of de facto bankruptcy in the next two years, noting that the central government needs to recognise the huge inflationary pressures that various places have had to deal with in the past 12 months.
Inflation in the UK has surged since mid-2022, reaching 10.1% at one point late last year, a new high in more than 40 years. Subsequently, inflation rates around double digits remained constant for several months. While inflation is currently down to 7.9%, it is still well above the Bank of England's target of 2%. The Bank of England has now raised interest rates 13 times in a row, raising interest rates in the UK to 5% to ease inflation.
The Institute of National Economy and Society, a British think tank, also pointed out that the reasons for the escalating inflation in the UK include the Russia-Ukraine conflict further stimulating energy and commodity prices, the supply chain crisis caused by the new crown epidemic, and the emerging sequelae of Brexit.
And it is the people who pay for all this, because it is the daily necessities such as food and daily necessities that always lead inflation.
According to Fortune magazine on August 19, the UK's public debt burden has soared by more than 40% since the outbreak of the epidemic to nearly 2.6 trillion pounds, surpassing its GDP for the first time since 1961.
Regarding the crisis in British local government, the British government's Budget Responsibility Office has warned that public finances are in a very dangerous situation, and the official expectation is that the size of the British national debt will reach 310% of GDP within 50 years.
Thus, Birmingham is not the first British city to go bankrupt, nor will it be the last, it may just be a domino in the chain.
Source: CCTV News Client