Birmingham City Council will be forced to raise up to £200 million through the sale of assets after the Government refused to lend it enough money to meet equal pay claims.
Local Government Secretary Eric Pickles has written to Sir Albert Bore, the city council leader, in a letter seen by the Birmingham Post, to confirm that his department will lend the council up to £100 million on top of the £429 million it has already borrowed, to meet the massive cost of equal pay claims.
But this is £200 million less than the council asked for, and the authority will have to make up the difference by selling assets such as land and property.
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The authority currently owns high profile assets including the Symphony Hall, the National Exhibition Centre and the International Convention Centre, as well as a share in Birmingham Airport.
It also has a wide range of assets across the city, such as libraries, leisure centres, playing fields, neighbourhood offices, court buildings, museums, allotments and public toilets, with a value of around £3 billion.
Now, it is set to be forced to sell some of this to help meet the cost of paying out £757 million in compensation to employees and former staff who claim they were discriminated against.
The payouts are mainly for female staff who worked as cooks, cleaners and careers, and who were paid much less than men in comparable jobs such as street sweeping and bin collection.
Birmingham has already obtained loans of £429 million, but this leaves a shortfall of £328 million – which the council asked the Government to provide.
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But Mr Pickles has now confirmed that he is willing to lend the council no more than £100 million, warning that the Government’s deficit reduction programme makes it impossible to provide any more.
In the letter to Sir Albert, he said: “It would not be possible for the Government to agree to your request in its entirety.”
He continued: “Your council will need to look purposefully at how you can use your significant assets to meet the bulk of your local pay liabilities.”
The Government would lend the council “up to” £100 million – but officials in Mr Pickles’ department “will need to see evidence of your council’s advanced plan to generate sufficient receipts from assets” before the cash is provided, the letter warned.
It also said that Mr Pickles would “confirm the scale and profile” of any extra funding only once the plan was received, in an apparent warning that the final sum could actually be less than £100 million if the council’s fund-raising proposals were not convincing.
The figure of £757 million is an estimate by the council’s external auditor based on claims for compensation that have already been made and potential claims that the council would have to accept, based on court rulings. It could increase if future court rulings make compensation available to more people.
The auditor has also warned that the council could face payments of around £75 million per annum to finance this debt.
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Mr Pickles has repeatedly blamed Birmingham City Council for failing to make provision for the massive cost of compensating employees and former employees.
The payouts are a results of the Equal Pay Act, which came into force in 1976. In 1997 the National Joint Council for Local Government Services, which represented councils and trade unions, negotiated a Single Status agreement, which was designed to end pay inequality while avoiding costly tribunals.
It was due to be implemented across the country by 2007 but Birmingham was one of a number of councils that failed to meet the deadline.
Speaking in the Commons in December, Mr Pickles claimed: “Which local authority got itself into the most appalling mess over equal pay when the rest of local government was putting aside sensible savings? Birmingham, which now faces a potential bill of over £700 million.
“Who is getting Birmingham out of the mess? We are. We will be prepared to allow Birmingham to pay off this sum, which other councils dealt with sensibly over the past 20 years by the sale of assets. Birmingham should be grateful for that.”
Sir Albert is due to announce details of the council’s plans to deal with the funding shortfall in a statement on the Birmingham’s finances and the planned budget for 2013-14.
In a joint letter to Mr Pickles, the Cabinet of Core Cities, which includes Sir Albert and the leaders of seven other major cities, warned: “There is a looming financial crisis in our cities.
“The growing pressure on services, in particular social care and other changes to the funding system mean that our real savings targets are several times greater than the cuts in grant. The biggest cuts in funding are still to come, with the average grant cut in 2014-15 now likely to be around 10 per cent and the Chancellor making it very clear in his Autumn Statement that cuts into the next Parliament will be significantly greater than previously expected.
“As a result the reductions in important services that will inevitably begin this year will intensify with the complete decommissioning of some services from 2014-15.”
A Birmingham City Council spokesman said: “The council has been clear about the major challenge presented by the scale of its actual and potential equal pay settlements. We have been in extensive discussions with the Department for Communities and Local Government about how we will fund future payments, and they are putting in place three measures to assist us in this:
“Firstly, the government is extending all councils’ accounting flexibility so that we finance equal pay payments only as and when we make them.
“Secondly, councils will be able to use capital receipts from the sale of their assets to meet equal pay payments, without requiring any specific approval from government.
“Thirdly, the Secretary of State, in the Parliamentary debate following his pre-Christmas statement on local authorities’ finance, recognised the equal pay position of Birmingham, and its particular need for support at this time.
“Taken together, it is expected that these measures will allow the council to fund its equal pay payments for this and next year, and we are working on our longer term funding strategy, again in dialogue with the Department for Communities and Local Government.”
Council budget: Page 9