Birmingham City Council, PMIs and Wildfires

Yesterday, Birmingham City Council (BCC) issued a section 114 notice, asserting that it can no longer meet its financial liabilities. BCC (which runs a budget of £3.2bn) represents the largest local authority in the UK and Europe, with the latest developments raising concerns across the country that it may be the canary in the coal mine for other distressed councils. With all but essential spending on the vulnerable and statutory services likely being halted, the prospect of closed libraries, pilling rubbish and ever-greater potholes is now a growing concern. Given that no English local council has ever gone bankrupt before, there is little in the way of protocol as teams scramble to find solutions from Victoria Square to Whitehall.

Following their issuing of the notice, a Birmingham City Council representative stated that “in June, the council announced it had a potential liability relating to equal pay claims in the region of £650m to £760m, with an ongoing liability accruing at a rate of £5m to £14m per month. The council is still in a position where it must fund the equal pay liability that has accrued to date (in the region of £650m to £760m), but it does not have the resources to do so.” Elsewhere, council funding cuts and a new IT system have been blamed for rising costs for BBC, which has fed into a budget deficit of £87m. Other councils to have raised the alarm bell include Kirklees, Hastings and West Berkshire with an estimated 26 English local authorities at risk of having to issue a 114 notice within 24 months.

Some commentators have raised the possibility of increasing council tax to meet ongoing costs, though any raising of council tax by 5% or more would require a referendum. Though, as the Guardian notes earlier this year Croydon Council raised council tax by 15% to help alleviate its financial difficulties, “after it was given special dispensation to raise it above a 4.99% limit”. All eyes now turn to any developments as angst grows for local authorities across the country.

Despite yesterday’s UK PMIs coming in stronger-than-expected, the contraction served as another reminder over the impact that tighter monetary conditions are having on the real economy. Data from S&P Global and CIPS indicated that the UK’s composite PMI levels came in at 48.6 against expectations of 47.9 as services came in at 49.5. The headline news was that business activity fell for the first time since January as dampened demand took hold of the UK economy. Here, the Business Activity Index came in at 49.5 over August, marking a contraction (and fall) from the previous month’s print of 51.5. Commenting on the contraction, the press release cited softening new business opportunities because of reduced disposable income due to tighter monetary conditions and economic uncertainty.

Elsewhere, while exports grew over August (marking a departure from many of the UK’s counterparts), Brexit related difficulties continued to be raised as an issue behind lost trade opportunities with the continent.  Businesses also cited cost pressures as a reason behind a slowdown in staff hiring, with many firms opting not to replace staff members who leave. Higher wages were also cited as a primary driver of rising business expenses, leading to sticky inflationary pressures. Here, Economics Director at S&P Global Market Intelligence said that “after a modest recovery over the past six months, service sector businesses are now clearly feeling the impact of rising interest rates on client demand”. With the time lag between rising interest rates and its impact on the markets being a hot topic of debate ahead of the BoE’s rate decision on 21 September, its clear that businesses across the country are citing the impact of monetary conditions being at their tightest levels since 2008.

According to Distrelec, the cost of damages cause by wildfires across the continent have soared past €4.1bn. With an estimated 400,000 hectares of land being lost, the damage to forestry, agriculture, property and infrastructure has been immeasurable. Thus far, the financial burden on Greece has been put at €1.7bn, followed by Spain, Italy and Portugal at €870m, €652 and €300m, respectively.

The wildfire to hit Alexandroupolis over August has been confirmed as the largest wildfire to hit an EU country since records began in 2000, according to the EU’s Copernicus Emergency Management Service. 20 lives have been lost along with 93,000 hectares.

With this summer’s Greek, Spanish and Portuguese wildfires etched firmly in minds of tens of millions across the continent, the EU is looking to expand its Civil Protection Mechanism. This mechanism has been in play for a couple of decade and enables members of the bloc to offer humanitarian assistance in times of need. Its most recently seen some 440 firefighters and 28 aircraft mobilised across Greece, Portugal and France as they try to battle against wildfires. As the New York Times notes, “the program is nascent” though “its budget for this season is only 23 million euros”.