A Birmingham City Council report has warned that the cash-strapped authority faces an urgent “redesign” likely to require asset sales, cuts to staffing levels and an increase in local taxes.

The report, outlining the authority’s proposed financial recovery plan after it issued a Section 114 notice earlier this month, said work to address the situation “must be urgent, will involve hard choices” and “will result in a smaller organisation”.

An executive summary of the report, contained in an agenda published ahead of an extraordinary council meeting next Monday, also said the authority is likely to require “exceptional” financial support from central government.

Stock – Birmingham Council House
Birmingham’s Council House (Rui Vieira/PA)

The summary stated: “The council must now agree and implement a financial recovery plan which balances our expenditure with our income, and funds or finances our liabilities.

“Further reports and decisions will be required as the detail is developed, including on savings and a revised emergency budget for 2023/24; on asset disposals; on redesigning our organisation to achieve a sustainable medium-term financial plan; and on generating additional income.

“Developing our full financial recovery plan must proceed quickly.

“Given the scale of the challenge, implementation is likely to be lengthy and there will need to be an extended period of rigorous spending control and tight financial constraint.

“We must find the best possible ways of working more effectively with our partners and more efficiently as an organisation.

“Throughout this we must remain focused above all on our citizens, protecting our vulnerable residents and communities, and must always put their needs first.”

Among the recommendations contained in the report is agreement to accept the Section 114 notice issued on September 5, effectively declaring the local authority bankrupt, and to endorse part of the recovery plan designed to reduce spending.

According to the meeting’s agenda report, the Section 114 notice was issued on the basis of a “potential liability” relating to equal pay claims in the region of £650 million to £760 million.

The authority does not have sufficient resources to cover the potential liability and has also identified a budget shortfall for the current financial year of £87 million, which is projected to rise to £165 million in 2024/25.

The document, issued on behalf of council chief executive Deborah Cadman, continued: “Our work to address the situation must be urgent, will involve hard choices about what we deliver, how we operate, and the shape and size of the organisation.

“The council acknowledges that the current situation will create uncertainty, and in some cases disruption, and unreservedly apologises.

“It is committed to ensuring that citizens, partners and our own staff are regularly updated on the current situation and its future implications.

“These serious challenges will not diminish the council’s ambition in supporting the upward trajectory of the City of Birmingham.

“Record levels of investment continue to flow into the city, and the council will work with our partners to ensure this remains the case.”

But it added: “Our organisational shape and size is now out of balance with our income. We must therefore redesign our organisation around citizen needs in a way that fits our future budgets.

“In some cases this is likely to involve transfers of services and assets to other organisations. We recognise that this process will result in a smaller organisation that employs fewer people.”

The Government is expected to make an announcement later on Tuesday on plans to appoint commissioners to oversee the day-to-day running of the council.

The authority’s report said many of the underlying forces driving its overspend are being felt by local authorities across the country, including rising demand and inflation in the cost of premises, transport, supplies and services.

A revised emergency budget for 2023/24 is expected be presented to a further special council meeting in late October.