The largest local authority in Europe, it has issued a Section 114 notice preventing all but essential spending to protect core services.

The pressures have been linked to a £760m bill to settle equal pay claims.

What’s the cause of bankruptcy?

It said all new council spending in the city, with the exception of protecting vulnerable people and statutory services, must stop immediately.

The council said it lacks sufficient resources to pay a £760million bill related to an equality claim, which is currently accruing at a rate of £5million to £14million a month.

Councilors from the local authority blamed the situation on ‘huge increases in adult social care demand… dramatic reductions in business rates’ and ‘rampant inflation.’

In a joint statement, the leader and deputy leader of the Labour authority said the move was a ‘necessary step as we seek to get our city back on a sound financial footing’.

A Section 114 notice, previously issued by other councils including Croydon and Thurrock, means a local authority has judged itself to be in financial distress and can no longer balance its budget.

There are problems with the implementation of Oracle IT system

In their statement, council leader John Cotton and deputy leader Sharon Thompson said the authority was also facing financial pressures due to problems with the implementation of its Oracle IT system.

Intended to streamline council payments and HR systems, the flagship system was expected to cost £19m but after three years of delays it was revealed in May it could cost up to £100m.

‘It is clear that Birmingham City Council faces unprecedented financial challenges, from huge increases in adult social care demand and dramatic reductions in business rates income, to the impact of rampant inflation,’ Mr Cotton and Ms Thompson said.

‘We implemented rigorous spending controls in July, and we have made a request to the Local Government Association for additional strategic support.

‘[Tuesday’s] issuing of a Section 114 Notice is a necessary step as we seek to get our city back on a sound financial footing so that we can build a stronger city for our residents.’

Announcing the notice at a cabinet meeting earlier, Ms Thompson said: ‘Whilst the council is facing some significant challenges, the broader city is still very much open for business.’

Negotiations with necessary quarters will continue

A further extraordinary meeting will be held on 26 September, and negotiations with the government’s Department for Levelling Up, Housing and Communities (DLUHC) will continue over the coming months to determine an approach to financing the liability, the authority said.

Downing Street described the announcement as ‘concerning’ for Birmingham residents, and said it was important for the council to ‘provide reassurances’.

A spokesman for Prime Minister Rishi Sunak said it was for locally elected officials ‘to manage their own budgets’, adding that the government had provided support to councils.