The city council has been branded 'blitheringly inept' after burning through £117m worth of reserves in two years provoking a 'rare' warning from auditors.

Birmingham City Council's financial failings have been laid bare in Grant Thorton's annual audit report for 2017/18 which one opposing Conservative councillor described as 'the most damning' he had ever seen.

The Tory group has further warned the authority is now on the 'brink of collapse' while the Labour-led administration has pointed the finger at government cuts to local councils across the country.

Birmingham City Council house
Birmingham City Council house

Some of key points from the audit report are:

  • The council has used £116.9m worth of reserves in 2016/17 and 2017/18 to balance its books but still made an overall deficit of £35m in the period.
  • The use of reserves has 'masked' the true financial position with the council effectively running at an annual deficit of £75m.
  • Waste management is a particular concern with that department alone overspent by £5.3m last year.
  • Last year's bin strike took focus away from budget monitoring while £1.6m spent on private contractors to provide cover during the dispute was not 'properly authorised'.
  • The council has not been 'transparent' around its use of reserves with internal reports painting a better financial picture throughout the year than was in fact the case.
  • This year and future years look 'extremely challenging' with a 'demanding' savings target of £117m by 2021/22.

Grant Thornton has now issued a 'rare' set of recommendations using powers under s24 of the Local Audit and Accountability Act which will prompt a full council debate on the issues in September.

But the auditors declared 'little progress' had been made since they took the same action towards the council in October 2016.

The set of recommendations include delivering savings plans, developing a 'realistic' medium term financial plan, maintaining an adequate level of reserves, being more transparent, reporting failures promptly and keeping on top of its subsidiary companies such as Acivico.

The auditors also took the 'unusual' step of making a recommendation for a specific department which demanded that the waste service was more 'robustly' managed having declared things had gone 'badly wrong' in that area.

It was not all bad news for the authority however as Grant Thornton stated the council's new management team, along with the recently re-elected Labour administration, was showing 'signs' of getting a grip on the finances which would rely less on reserves in future years.

Phil Jones, from the auditors, also stated that the council had been more proactive and open about flagging up financial issues in recent months.

He added: "The key, from our perspective, now, is to start to convert the good intentions into the improvements required."

Nevertheless the current situation prompted grave concerns among members of the audit committee.

Cllr Meirion Jenkins (Cons, Sutton Mere Green) described the report as the most 'damning' he had ever seen.

He said: "It is hard to know where to start. The thing that strikes me as particularly bad, up against some pretty stiff competition, is that information has been withheld from auditors or being presented in such a way to put you off the scent.

"It is highly concerning the administration of the council has got to a point where they feel they can do that and not suffer any consequences."

Referring to the s24 recommendations he added: "It is really hard to know how the administration can be so blitheringly inept to put ourselves in the position we are in."

Cllr Paul Tilsley (Lib Dem, Sheldon) declared he was 'shocked' by the accounts and repeated his recent claim that Birmingham would soon be in the same boat as Northamptonshire County Council which had to halt all new spending in February, due to financial pressures, and is being overseen by government commissioners.

While committee chairman Cllr John O'Shea (Lab, Acocks Green) admitted the state of affairs was 'not a good place to be' but argued that reductions in funding from central Government was 'hurting' local councils throughout the country.

The report, which was presented to the audit committee on Monday, has prompted further reaction since.

Conservative group leader Cllr Rob Alden (Erdington) said: "It is very rare for a council to be issued one notice, to be issued two is unheard of yet it has happened again and with finances under the control of Councillor Ian Ward for the last six years what is now clear is that Labour have taken the city council to the brink of financial collapse.

"As numerous independent and external voices have now told us that whilst the council faces the same difficulties and proportionate level of cuts as other councils it now faces issues entirely of its own making by either refusing to or proving to be incapable of making the transformational change needed to meet these challenges."

This year the council has introduced measures to make cabinet bosses and chief officers more accountable for the financial performance of their services while they have been told they cannot use further reserves.

Cllr Ward has also spoken out on the matter and said: "We always knew that this would be a challenging year financially.

"The early revenue monitoring reports bear this out.

"However, I have made clear that directorates must deliver their services within budget.

"The council must take the decisions necessary to live within its budget and not rely on reserves to do this.”

He added: “Birmingham is not alone in the financial pressures it faces, this is a local government wide issue that needs to be addressed.

"The Local Government Association has predicted a £5.8 billion funding gap for the sector in just two years, and has launched a consultation on how to deal with the £3.5 billion funding gap relating only to adult social care.

"The government cannot continue to watch those services for our most vulnerable, struggling to cope with pressures due to severe reductions in funding.”