‘Bankrupt’ councils and equal pay: what’s the impact for HR?

Equal pay issues have been well publicised at local authorities such as Birmingham, and are the main driver for budget deficits in a number of cases. The impact of these financial woes spreads much wider than settling historic claims, reports Jo Faragher.

At the end of September, it was reported that Birmingham City Council had declared itself “effectively bankrupt” for the second time in two weeks. The local authority revealed that it does not have the funds to settle up to £760 million in equal pay claims, some of which date back more than a decade.

Birmingham is one of a number of councils recently issuing a Section 114 notice, which means they cannot make any new spending commitments, explaining the “effectively bankrupt” description.

According to analysis from Unison, it is far from the only one. The union estimates that local councils have a collective hole in their finances of £3.5 billion for the coming financial year.

And while not all councils’ deficits are due to equal pay issues, every single one will see an impact on its HR, recruitment and resourcing as a result.

Budget gap

Although there has been widespread media coverage of councils “going bust”, local authorities cannot actually go bankrupt in the same way a business would.

According to the House of Commons library, a section 114 notice simply indicates that a council’s forecast income is insufficient to meet its forecast expenditure for the next year. In Birmingham’s case, the gap between its income and expenditure is estimated to be around £87 million.

Unions representing workers at the council are calling for leaders to enter “meaningful” talks on how it intends to settle those equal pay claims. But while the council is in the process of introducing a new pay structure, a date of November 2024 has been set for a hearing to determine whether its job evaluation scheme is valid.

This means workers could be waiting many more months before they receive any settlement, and GMB organiser Michelle McCrossen recently urged the council to “end the discrimination and settle this dispute; they should sit down with GMB and sort this out now”.

Growing liability

In the meantime, the council’s equal pay liability is only likely to grow, says Stefan Cross KC, the barrister who began representing Birmingham employees in 2005 and has represented hundreds of female workers in equal pay claims against multiple councils since.

In 2012, the Supreme Court ruled that 170 former female workers of the council could proceed with the claims, and number of claimants has continued to grow ever since. The GMB is supporting more than 3,000 claims against Birmingham alone.

“The liability in Birmingham is not agreed,” says Cross. “They’ve come up with a number but not shown how they got there. The likelihood is they’re underestimating it, and the biggest problem is that the number is historic, not total.”

How councils approach their budget shortfalls varies as much as the areas they represent. Coventry City Council, for example, recently wrote to the Department of Levelling Up asking for help, claiming it was “on the precipice of financial disaster”. In Glasgow, the council sold assets including the city’s Kelvingrove Museum and Art Galleries to fund a £770 million compensation pay-out for equal pay claims.

Complex conversations

Whatever the level of liability, the shortfalls will have prompted some complex conversations between people and finance teams, believes Gordon McFarlane, president of the Public Services People Managers Association (PPMA) and assistant director (corporate services) at Leicestershire County Council.

“HR has to work alongside finance teams but also politicians, who will be asking ‘what can we pull back on?’” he says. “To some extent declaring section 114 means it’s out of your control, but you can introduce your own controls into the situation.”

“That could be tightening up governance around the use of agency workers, for example, or challenging the need for permanent posts. Then you’ve got to weigh up whether it’s worth pausing or stopping something that costs money in the short term but might have longer-term benefits.”

Many local authorities have discussed cutting back to “essential” or “statutory” spending, adds McFarlane, but in order to do this they need to define what those terms mean, as different departments will have a view as to what residents cannot live without. Depending on distance from local elections, political motivations will also likely come into play, he points out.

Job evaluation schemes

One of the key bones of contention around equal pay liabilities is the frameworks councils use to calculate whether pay levels are fair. Individual councils and groups of authorities tend to follow different job evaluation schemes, such as the National Joint Council (NJC) scheme or the GLPC job evaluation scheme used by London boroughs.

“Until 1997 there was a national Job Evaluation Scheme but that was abolished by the Single Status Agreement brought in by the Labour government,” explains Cross. The new agreement meant some jobs were downgraded or re-evaluated and, in response, some councils introduced “pay protection”.

“You could be living in one authority where the pay rate for a home carer was one level, and working in another down the road getting a completely different rate of pay,” he adds. Short-term measures such as pay protections ended up baking in further inequalities in some cases.

Even as recently as during the pandemic, Birmingham City Council decided to no longer follow the NJC framework and instead implement an arrangement called “task and finish”, a working practice where people are paid in full for a shift even if they complete their allotted tasks in a shorter time.

But because equal pay legislation means employees doing similar work are entitled to the same pay, this amounted to an unfair advantage for staff in some departments. The GMB union has been campaigning for the past two years for the council to re-implement the NJC, claiming this would “stop the clock on the city’s mounting equal pay debts”.

Recruitment and retention

But while the pay battles run on and debts continue to mount, council leaders are also mindful of how this plays out for recruitment and retention. Regular headlines around “bankrupt” councils and authorities going “bust” naturally have an influence over where talented candidates choose to work, says McFarlane.

“Councils are not like businesses, they’re not like Wilko disappearing from the high street,” he adds. “There are still people who are striving to provide services for the community as these stories roll on. How can we recruit and retain people when the headlines are so dire?”

Similarly, conversations about how services are staffed cannot only revolve around money, he says: “It’s easy to be finance-led in these circumstances, but we have to also think about the impact on the workforce and service provision.”

Unison general secretary Christina McAnea agrees: “Essential services can’t run on thin air. Staff levels have already been cut to the bone in desperate attempts to balance the books.

“Yet more service cuts and job losses are sadly inevitable across the country unless the government intervenes with the lifeline of significant extra funding. Not just for those on the brink, but to councils everywhere.”

With a general election likely in 2024, might a change in government influence local authorities’ fates on the equal pay situation?

Stefan Cross believes there might be a more empathetic response from a Labour government, but this could mean a reversion to national collective bargaining arrangements, which create a more level playing field but can be rigid.

Whatever happens, he says, the money will have to come from somewhere. “Why should these women and residents be punished for what in many cases was a management failure? The state will have to pay the money, it’s just a case of which route it will use,” he concludes.

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