Whatever happened to ‘the best-governed city in the world’?

The effective insolvency of Birmingham city council shows the decline in how local government is taken seriously

September 08, 2023
Birmingham in the late 19th century. Image: Chronicle / Alamy Stock Photo
“Birds-Eye View Of Birmingham in 1886” by 19th-century illustrator HW Brewer. Image: Chronicle / Alamy Stock Photo

Once upon a time Birmingham was described as “the best-governed city in the world”. The description was made in 1890 by New York’s august Harper’s magazine:

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(Zoom in on the above, or read from page 99 onwards.) It is perhaps the second most notable description of Birmingham by an American—this 1970s video, of course, being the greatest.

The 1890 article went on for 12 pages, and its conclusion (which should be read in full) stated:

Birmingham’s total debt is £7,000,000. The city owes £2,000,000 on account of the gas undertaking; but that pays expenses, interest on debt, sets aside a large sum annually towards liquidation, and pays £25,000 to £30,000 a year to the general funds. A debt of £2,000,000 was incurred in the water undertaking; but that pays all its liabilities and yields £2,000 a year to the funds, the interest on its reserve fund. Both undertakings continually lower the price of the two great necessaries. The sum of £1,500,000 is due to the Improvement Scheme, but the property purchased is of equal value, yields a large rental, promises in a few years to meet all the charges upon it, and is certain to yield future generations a great revenue for general expenditures. Against the rest of the debt Birmingham has great properties—2066 acres in all, including the sewage farm, which now produces food sold at reduced cost to the people, and which will some day pay its way; also the water department and gas property, parks, asylums, cemetery and sites of public buildings. The city is a great employer, and pays 4,000 men £24,000 a year. Mr J Thackray Bunce, in his history of the city, calls the voters “the owners of a magnificent estate and partners in vast and lucrative industrial undertakings. From these, secured and maintained at moderate cost, they derive benefits possible only under a highly organised and well administered system of communal effort—the truest form of cooperation—a real socialism, self-imposed, self-governed, conducted with the assent and by the efforts of a united community, and conducing to the equal advantage of all its members.”

That passage details a considerable burden of debt. Even at its supposed very greatest, Birmingham was not debt-free. And seven million pounds in 1890 prices would perhaps be the equivalent of well over a billion pounds today.  

But much of that debt was incurred in the purchase of gas and water undertakings, and these undertakings soon paid for themselves and more. The land acquisitions, especially in the centre, were prudent overall. Birmingham also had resources and properties to set against the borrowing. 

Birmingham was “the best-governed city in the world” in 1890 not because it was free from debt and ran a surplus; it was the best governed city because it managed and financed its immense debt in a business-like, sensible way, even when embarking on grand projects. And, as the American journalist mentions in that article, the city was also regarded as “a great employer”.

Birmingham in 2023 is not “the best-governed city in the world”. The head of finance at the council, discharging a statutory function, has made a report under section 114 of the Local Government Finance Act 1998. For it appears to them that the authority’s expenditure incurred (including expenditure it proposes to incur) in a financial year is likely to exceed the resources (including sums borrowed) available to meet that expenditure.

In other words, the council is effectively insolvent. As a consequence of this report, unless further resources are found, all non-essential expenditure should come to an end for the foreseeable future. A section 114 notice, as they are known, is not a trivial thing.

And how has this happened? It appears from a close read of the report, and from specialist reporting in the local government and IT press, that it is because of two serious shortfalls happening at once. Had it been just one of them, the council may not have faced such a drastic development. The two together are devastating. The first is a massive and historic employment claim and the second is an IT procurement project that has gone badly wrong.

So, far from successfully conducting a fundamental improvement scheme to change the face of Birmingham, as in the 1890s, the city has failed disastrously in managing a comparatively straightforward procurement exercise. And this once “great employer” of 1890 now owes between £650m and £760m to its own underpaid employees. Harper’s magazine is today unlikely to run 12 pages on the details of how this one English city council impressively governs itself.  

The problem is not only this huge debt, in and of itself. From time to time many public authorities have a surplus or a deficit, depending on circumstances and planning. Public administration is expensive and revenue streams fluctuate. As in 1890, a shortfall in income against expenditure is no cause for alarm.

Nor is the problem just one of ideology or party politics. The current Labour majority has had control since 2012, and for the previous nine years there was a Conservative-led coalition. The employment claim liabilities come from a claim that was originally made in 2010 under the earlier regime. It is true that the Labour administration has done little or nothing to properly manage this contingent exposure, other than to contest the litigation. But if the parties swapped places there is no particular reason to believe the issue would have been any better dealt with.

And as for poor management of a public sector IT project, such things are very much apolitical. Such fiascos happen under authorities under all parties and none. Here there has been a contradiction between the working practices of the council and the functionality of the procured ERP system, and rather than the council changing its practices to match the software there has had to be bespoke modifications to the incoming software. No doubt there are many happy consultants who will have advised on all these changes, but the council seems to have been an inept procuring authority.

That party affiliation is not the problem can also be evidenced by other councils that have similarly issued reports under section 114 of the Local Government Finance Act, including the Conservative-held Thurrock and Woking.

And the problem is not merely a lack of public money, contrary to the suggestion in the Guardian. If, for example, the budget increased for Birmingham’s wayward IT project, then the consultancy and implementation fees would be likely to increase too: money in, money out. The costs of any badly run IT project will always tend to expand so as to at least consume the resources available.

The ultimate problem is perhaps the lack of seriousness with which local authorities are regarded and the lack of seriousness with which councils are run. More than in 1890, our political culture is dominated by Westminster and Whitehall. We are an over-centralised polity. We do not take local government seriously enough to give councils significant powers and adequate resources and tax-raising abilities. And we do not take local government seriously enough for the powers and resources and revenue-raising abilities that local authorities do have to be used well.

Few take any serious interest in local government matters. An account of the government of a large city other than London will rarely get 12 paragraphs in an earnest newspaper, let alone the 12 pages of a fashionable transatlantic journal. The sort of individuals who in 1890 would manage major acquisitions and improvement projects for provincial cities as part of their civic roles are not often the local councillors of 2023. And why should they be? Local authorities have limited independence, apart from in making mistakes.

Local elections are largely treated as national opinion polls. Councils are expected to do a great deal, but with fewer resources and almost no real autonomy. This is a problem wider than Birmingham, even if the city provides a good illustration of it.

And this problem would be there even if the section 114 notice had not been issued. Section 114 notices are an exceptional safety brake. They exist as a last resort, when internal management and processes have otherwise failed. As such, that a section 114 notice was issued is an example of the overall system working, but only as an emergency brake shows a motor car is working. One suspects many councils are merely one misfortune away from their own section 114 notices, and there for the graces of the gods go many local authorities.

The employment and IT issues that hit the budget of Birmingham will have their counterparts in other issues for other councils. The particulars of each issue will be different; but the lack of seriousness in managing risk and exposure will be the same. Long-term drifts will convert into immediate pressures. There will be other section 114 notices, as reserves become insufficient. As another American writer once said about going bankrupt: it happens gradually, and then suddenly.