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This week, the Birmingham city council issued a “section 114 notice. This means that the council cannot meet its legal obligation to balance the books. This story made me ask how can a city in a place like the UK go broke and what can we learn from this.

Table of Contents

A Stroll Down Memory Lane

Imagine going back in time to 1890, when August Harper’s magazine in New York called Birmingham the best-run city in the world.
This publication described Birmingham as the best-governed city because it was managed in a very sensible manner.

The AAA Rating: A Symbol of Financial Stability

In 2011 Birmingham was also considered the standard because they got a AAA rating. In the financial world, a AAA rating is like a 5-star hotel, it is a testament to its financial stability and a booming economy.

The Present Scenario

The Section 114 Notice

Fast forward to the present, and Birmingham City Council is in a precarious situation. Issuing a Section 114 notice means it is bankrupt and can’t meet its legal obligation to balance the books this year.

The Road to Bankruptcy

The Equal Pay Claims

One of the main reasons for this financial turmoil is the hefty equal pay claims brought forth by it’s female employees. The council has paid out 1.1bn in claims so far and has an outstanding of £760m, which continues to increase monthly.

The IT System Fiasco

Adding fuel to the fire was the implementation of an IT system gone wrong. The project’s initial cost was £19m but the project ended up costing close to £100m.

Other Expenses

The council embarked on an ambitious journey to host the Commonwealth Games, which came with a hefty price tag of £184 million.
 
While the event brought the city into the limelight, it also dug a deeper hole in the council’s strained budget. The council’s financial troubles were further deepened by a series of investments.
 
From a £13 million investment for the 2026 European Athletics Championship to undisclosed expenditures on inclusive street signs and a Green road plan.

Personal Finance Lessons to be Learned

  • Live within your means. This is the most important personal finance rule of all. The fact is for years the council and many councils in the UK spend more than they make. Not living within your means has a ripple effect. You can’t keep spending more than you earn without something breaking. As the quote says “You go broke gradually and then suddenly.”
  • Avoid impulse purchases. It is easy to get caught up in the moment and make impulse purchases that we don’t really need. Before you buy something, take a step back and ask yourself if you really need it. If you can’t answer that question with a definitive “yes,” then put the item down and walk away.
  • Pay off debt as quickly as possible. Debt can be a major financial burden. The sooner you pay off your debt, the less interest you will pay. There are many different debt repayment strategies available. Read our article that differentiates them, find one that works for you and stick to it.
  • Save for emergencies. It is important to have a financial cushion or cash reserves in case of unexpected expenses. This is called an emergency fund. Most of the big companies you know have large cash reserves some like Microsoft and Google even larger than their debt. Emergency Fund: Everything you need to know
  • Get professional help if needed. If you are struggling with your finances, don’t be afraid to get help from a financial advisor or coach.