- New report from the Audit Reform Lab based at the University of Sheffield calls for an independent inquiry into Birmingham Council’s collapse and for Whitehall to redraw its support package
- The authors of the report say tens of millions of pounds of cuts and tax rises can be avoided if Whitehall moves quickly to redraw the intervention
A detailed financial investigation by accountants and researchers at the Audit Reform Lab, based at the University of Sheffield, has revealed a catalogue of problems and errors in the run-up to and following Birmingham City Council’s financial collapse.
The Council’s financial problems were misdiagnosed, auditors did not sign off accounts, there was an ambiguity about if and how key numbers were confirmed, and the financial measures imposed on the Council by central government were highly damaging. Tens of millions of pounds of cuts and tax rises can be avoided if Whitehall moves quickly to redraw the intervention.
Dr James Brackley, from the University of Sheffield’s Management School and lead author of the Audit Reform Lab report, said: “Birmingham City Council, IT firm Oracle, auditors Grant Thornton and the last Conservative government all have serious questions to answer over their role in this fiasco. Ordinary people in Birmingham are not to blame, yet they are the ones paying the price through proposed council tax rises and cuts to vital public services.”
When the Council issued a section 114 'bankruptcy’ notice last year, both the Council and the former Levelling up Secretary Michael Gove cited a £760m equal pay liability as the primary reason for the financial problems, referencing the external auditor’s assessment. Grant Thornton claim that they never audited or confirmed that figure, despite taking over £1m in audit fees from the Council. According to the report, the Council’s problems were primarily due to the disastrous implementation of a new Oracle IT system which resulted in tens of thousands of cash transactions unable to be traced, alongside central government cuts and increased demand for services. Very little of the deficits relate to the equal pay liability.
Following the misdiagnosis, Gove initiated a process that led to the largest ever cuts to a local authority budget and the fire-sale of £750m of assets. The report argues the measures imposed on Birmingham gave little consideration to best value or financial sustainability, and are likely to lead to a breach of the Council’s statutory duties, undermine business-critical operations, and contribute to cost spirals and worsening outcomes.
Dr Brackley continued: “We are calling for a full and independent inquiry and a new recovery plan for the city. The new UK government should urgently restructure the Council’s financial support, capitalising it against the Oracle IT disaster rather than the speculative equal pay liability. This would give Birmingham 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 to deal with the temporary Oracle costs.”
Grant Thornton has been sanctioned for their botched audits of Patisserie Valerie, Sports Direct and an unnamed local authority’s pension fund. Poor audit quality is a significant concern across the board, with the new UK government announcing plans to introduce legislation.
Laurence Turner, MP for Birmingham Northfield, said: “The rushed statutory intervention is having a devastating impact on Birmingham’s public services and the city’s future financial stability. Everyone who uses those services and pays council tax deserves better. Mistakes were made locally and also by the previous Conservative Government and the external auditors and IT consultants. The full story must come out, and I urge the new Labour Government to carefully consider the findings and recommendations of this important report.”
