Secretary of state has released proposals for DLUHC to send commissioners in with a remit to address major issues that led to local authority effectively declaring bankruptcy earlier this month

Government has set out plans to send commissioners into Birmingham City Council after the authority declared it faces a projected £87m in-year shortfall – a significant cause of which is botched rollout of Oracle software that cost the council in excess of five times more than expected.

The proposed intervention from the Department for Levelling Up, Housing and Communities comes two weeks after Birmingham issued a section 114 notice, the local government equivalent of a bankruptcy declaration. Birmingham cited an outstanding equal pay settlement of up to £760m – which it said was growing at a rate of £5m-£14m a month – as its main financial problem.

However, the ballooning cost of its Oracle IT system is another significant financial headache for the city.

In a letter sent to the council, the department said that its secretary of state Michael Gove is “considering exercising his powers of direction… in relation to Birmingham City Council secure its compliance with the best value duty” – a legal requirement that councils perform their functions with “economy, efficiency and effectiveness”.

Related content

• Birmingham tech leader hails return of innovation after exiting outsourced IT contract
• Birmingham seeks market input on Windows 10 migration
• How Birmingham City Council ditched ‘vanity projects’ and transformed its white-elephant website

Gove’s proposals, which would see expert commissioners sent in to oversee turnaround work, come in light of his assessment of the issues and costs caused by the authority’s “flawed implementation of a new financial ledger system” from Oracle, as well as the “handling of its significant equal pay liabilities”, and other “serious governance and service delivery concerns”.

The rollout of the Oracle software was originally expected to cost £19m. But the problems that have arisen during the delivery of the project will now require funding of £100m, according to the letter.

The missive added that auditors Grant Thornton had assessed Birmingham’s estimated equal pay liabilities at more than the council’s £760m figure and potentially “much higher”.

The secretary of state said it this meant Birmingham’s 2020-21 and 2021-22 accounts had “materially misstated” costs related to equal pay settlements and the council did not have reserves to meet the liabilities due for those years.

Under DLUHC’s package of proposals, the team of commissioners, led by local-government turnaround specialist Max Caller, would provide advice and challenge the council. They would also have powers to make decisions directly, if necessary.

Under the proposed direction, Birmingham City Council would also be required to undertake specific actions, including the preparation and implementation of an improvement plan to return the authority to a sustainable financial footing.

Birmingham would be given six months to produce the plan, however DLUHC’s letter to the authority proposes that the directions underpinning the government intervention should remain in place for five years.

“The scale and nature of the failings at the council, its precarious financial situation and its failure to provide sufficient assurance to government that it is taking adequate action to address these issues are all highly concerning,” Gove said. “Central government is prepared to extend additional financial support to the city. But our commissioners, I am sure, will be confronting the political leaders of Birmingham City Council with some necessarily very difficult decisions and I hope that we can take them in a constructive spirit together.”

The council’s leadership team has been asked to respond within a week.