U.K.’s Second City Birmingham in London Talks to Plug Budget Gap

Lawmakers and council members from Britain’s second city, Birmingham, are meeting the government in London today to discuss ways of overcoming a budget crisis that’s putting at risk basic services such as trash collection.

Birmingham City Council, the U.K.’s largest local authority, may need to pay out as much as 500 million pounds ($820 million) in compensation after losing a legal battle for paying women less than men.

Faced with government funding cuts amid the U.K.’s biggest austerity drive since World War II, the council has shed a third of its workforce since 2010. Efforts to save money include planting slow-growing grass to cut mowing, in a bid to save about 840 million pounds over the eight years to 2018.

“You have got the perfect storm,” Gisela Stuart, the opposition Labour Party lawmaker for Parliament’s Birmingham Edgbaston district, said in an interview. “You have a council that has, like many other councils, a problem with equal pay, and because they kept dragging their feet in terms of challenging the judgment, the hole they were in just got bigger and bigger.”

The cross-party Birmingham delegation will meet the Conservative local government minister, Brandon Lewis. The authority, now run by Labour, has been told it can’t borrow any more money from central government to plug its finances.

Grants Fall

The council, which oversees a budget of 3.4 billion pounds for a population of more than 1 million, said in a statement accompanying its last budget that central-government grants to Birmingham have fallen by 14 percent, or 140 million pounds, over two years. Meanwhile, costs are forecast to increase by 315 million pounds over the six years to 2016-17.

Following a 2012 Supreme Court ruling, the city faces payments to tens of thousands of mostly women workers such as school cooks and social-care staff who were paid less than men for work of equal value over decades.

Lewis’s Department for Communities and Local Government argues that Birmingham receives 2,587 pounds per household in spending power from the central government, 400 pounds more than the national average.

“There can be no blank check from national taxpayers to bail out the council, given most other local authorities resolved these issues years ago,” Lewis said in a statement.

Exhibition Centre

Birmingham is looking at selling big-ticket assets that have a total value of as much as 5 billion pounds. Those include the 186,000 square-meter National Exhibition Centre; a downtown convention center known as the ICC; the LG Arena, the National Indoor Arena; a stake in Birmingham Airport Holdings Ltd. and museums, sports and leisure facilities.

A council spokesman, speaking on condition of anonymity, would not give details of how quickly the city has to meet its funding needs or which buildings may be offered for sale.

“They are doing the right thing by looking at the assets they can sell, without giving a list of those assets because that would lead to a fire sale.” Stuart said. The “real big prize” for the city, she said, is what concessions it can get from the central government before national elections in 2015.

Richard Taffler, a professor of finance at Warwick Business School to the south of Birmingham, said interest in the city’s assets may come from private equity funds, pension funds, and property investors, though there’s no publicly available figure for how much the assets are worth individually.

Even so, options may be limited by the local economic importance of properties such as the NEC, located next to the airport, which pumps as much as 3 billion pounds a year into the area and supports 29,000 jobs, Taffler said in an interview.

“Birmingham City Council has a continuing large deficit, which has to be funded independent of its immediate needs to meet the equal-pay obligation,” he said. “In the case of the NEC, this is a major driver of the local economy and any mooted sale needs to ensure that the economic interests of the West Midlands are safeguarded.”

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