Birmingham City Council may never have been technically bankrupt when it issued its Section 114 notice in 2023, according to new analysis suggesting the declaration was based on inaccurate financial information.
Accounting experts now believe the Labour-run authority’s decision to declare itself effectively insolvent was made using unaudited and “materially incorrect” data that underestimated its financial reserves by more than £1bn.
The Section 114 notice, issued in September 2023, triggered sweeping spending cuts, the planned sale of £750m in public assets, and the government’s decision to install commissioners to run the council for five years.
At the time, council leaders blamed the crisis on £760m in equal pay liabilities, IT system failures, and a decade of funding cuts imposed by successive Conservative governments.
But a reassessment of the council’s financial accounts between 2022 and 2025, led by Dr James Brackley, a lecturer in accounting at the University of Glasgow, has called that decision into question.
‘We need answers’
According to Brackley’s analysis, Birmingham’s reserves were drastically underestimated. The council’s official 2022–24 accounts, finally published in July 2025, show that the authority held £784.7m in general fund reserves as of March 2024. By contrast, forecasts made in late 2023 projected reserves of -£677.9m, suggesting a negative balance.
“We urgently need answers as to why the largest cuts and asset sales programme any local authority has ever faced was pushed through before a proper financial assessment had taken place,” Brackley told The Guardian.
He is among 34 experts in accounting, finance and local government who have written to the Housing and Local Government Secretary, Steve Reed, calling for an independent public inquiry into the decision.
In their open letter, the group described the Section 114 declaration as one of the most damaging in British local government history, arguing it had been based on “unaudited and materially incorrect accounting information”.
Disputed liabilities
Brackley’s research also suggests the council overestimated its equal pay liability, initially valued between £650m and £760m, when the actual figure was closer to £404m, according to the council’s most recent accounts.
He further argued that the liability was wrongly attributed to the general fund — from which day-to-day services are funded — rather than being covered by the capital receipts reserve, a pot of money later used to pay settlements.
However, the council defended its original position, saying it was legally required to account for the potential liability in 2023, not the eventual settlement figure. Officials said they were also unable to “capitalise” the costs at the time due to regulatory restrictions.
Political fallout
Paul Tilsley, a Liberal Democrat councillor, said he had long suspected the bankruptcy declaration was “premature”. “The findings from Dr Brackley and his colleagues support the concerns many of us had from the start,” he said.
The council’s Conservative leader, Robert Alden, blamed “Labour’s financial mismanagement” and the “botched Oracle IT rollout”, saying residents were now facing “a double whammy of higher taxes and fewer services”.
Council leader John Cotton defended his administration’s record, saying his focus had been on resolving the equal pay issue, stabilising the Oracle system and closing a “huge budget deficit”.
“We’re now on track to deliver a balanced budget without exceptional government support for the first time in years,” Cotton said. “Our priority remains repairing the damage caused by 14 years of Tory cuts that have cost Birmingham over £1bn.”
The government has yet to respond to calls for an independent inquiry, but pressure is growing for answers on how the UK’s second-largest city found itself in a crisis that — according to some experts — may never have truly existed.
