Levelling Up Secretary Michael Gove has announced he will appoint commissioners to take over Birmingham City Council and launch a local inquiry after it declared itself effectively bankrupt.
The cabinet minister said residents and businesses “deserve better” after the authority issued a Section 114 notice.
He said his intervention package “is formed of two complementary parts”.
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“First, I propose to issue statutory directions to the council and to appoint commissioners to exercise certain functions of the council as required,” he told the Commons.
“And second, I intend to launch a local inquiry to consider the more fundamental questions around how Birmingham got to this position and options for how it can become a sustainable council moving forward that secures best value for its residents.”
Mr Gove said the commissioners would be in charge of the council’s financial governance and scrutiny, and local leaders would be expected to prepare and agree an improvement plan within six months.
He has written to the council to explain his intervention proposal and the authority has five working days to make representations.
He said: “I do not take these decisions lightly but it is imperative in order to protect the interests of the residents and taxpayers of Birmingham, and to provide ongoing assurance to the whole local government sector.”
Birmingham City Council has been grappling with an equal pay liability, which has grown over several years and is now estimated to stand at around £1 billion.
It is also facing an in-year financial gap in its budget, which is currently in the region of £87 million, and is having to spend around £100 million on fixing errors in the implementation of a new IT system.
The Labour-run council is the largest local authority in Europe, comprising 101 councillors (65 Labour, 22 Conservative, 12 Liberal Democrat and two Green).
Mr Gove said he is prepared to extend additional financial support to Birmingham, although he warned of “tough decisions” ahead.
Asked if the commissioners’ powers would extend to decisions to raise council tax and sell assets, he said this has “sadly been the case in the past with local authorities that have failed”, like Croydon and like Slough.
However he stressed it is ” too soon to say what the precise mix of interventions that may be required are”.
He went on to say that although he believes strongly in local government, “when failures of local government occur, we must act”.
However Angela Rayner, Labour’s new shadow levelling up secretary, said Mr Gove “can’t seriously say” the financial problems are Birmingham council’s fault.
She said a string of councils declaring bankruptcy in recent years had been “caused by the Conservative’s wrecking ball”.
The deputy Labour leader said: “Local authorities across the country are struggling.
“After 13 years he can’t seriously say that it is all their own fault. Perhaps he can confirm that only one council issued a section 114 notice before his party took over in 2010, but since then eight councils have issued notice, with warnings that another 26 councils are at risk of bankruptcy over the next two years?”.
She added: “The truth is, this crisis in local government has been caused by the Conservative’s wrecking ball, with every swing another local council is pushed to the brink, and another local community falls over the edge.
“That is the difference between us. A Labour government would oversee sustainable long-term funding for councils, and we would work with local authorities and push power and wealth and opportunity out of Westminster.”
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