Tuesday, 21 January 2014

Bonus Fairy

The BBC carried an interesting report the other day about Birmingham City Council being forced to sell off major assets such as the NEC (National Exhibition Centre) in order to meet the costs of the Council's equal pay claims.

Now the reason the bill is so high is twofold: firstly, Birmingham is the largest local council in the UK by far; secondly, the size of the bonuses paid in Birmingham were much greater than in any other part of the country with traditional male council jobs such as refuse workers earning £50,000 or £60,000 a year.

The extremely high bonus levels in Birmingham were well known to the trade unions, of course, because the trade unions negotiated these bonus deals with the council and the unions knew what their male members were earning.

So, I'm pretty sure I'm right in saying that the Bonus Fairy didn't happen along one day and impose these bonus agreements on a reluctant workforce - and nor was the Bonus Fairy to blame for keeping the rest of the largely female workforce in the dark about traditional male jobs were earning.

As for the comments of the local Labour MP, Gisela Stuart, Birmingham Council was Labour controlled for most of the relevant period (1997 to 2007), the Council's budget increased rapidly during that time and the Labour supporting unions knew exactly what was going on. 

Birmingham landmarks like the NEC could be sold off

The NEC could be worth "as little as £300m" a finance expert has said

Landmarks such as the NEC could be sold to pay legal claims over equal pay totalling more than £1bn, Birmingham City Council has said.

The council has agreed settlements with thousands of women who were paid less than workers - mainly men - who did equivalent jobs.

One law firm is said to be dealing with 4,000 outstanding cases.

It has agreed to defer these until the next financial year to give the council time to pay, the BBC has been told.

The council has already paid out nearly £500m after being allowed to borrow the money but the Department of Communities and Local Government will not allow it to borrow any more, leaving a shortfall of £550m.

'Fire sale'

A council spokesman said the authority had assets of about £5bn, and they "continually review all assets within our portfolio to ensure that the best value is obtained for the taxpayer".

What else could Birmingham sell?

Birmingham City Council could sell off some of its landmarks to settle part of a £1bn equal pay claim.

Finance professor Richard Taffler believes the NEC is "probably only worth £300m".

So what could the council sell off? Emaillocallive@bbc.co.uk and we'll feature your suggestions on Birmingham Local Live.

Those assets include the NEC group - the National Exhibition Centre, the LG Arena, the National Indoor Arena (NIA) and the International Convention Centre.

A confidential report was circulated among councillors asking them to consider various options, BBC correspondent Phil Mackie said.

"The council remains guarded about how quickly it needs to pay the claims, and which buildings will be offered for sale.

"It doesn't want to create the impression that its hand is being forced and that it's holding a fire sale," he reported.

The NEC group said no decision had yet been taken regarding a potential sale.

Chris Benson, from law firm Leigh Day, which represents women who are taking equal pay claims against Birmingham City Council, said there were a number of ways in which Birmingham could have avoided a £1bn bill.

"They could have settled with the workers they underpaid instead of paying London lawyers to defend the indefensible for two years," he said.

"They could, of course, have paid the women fairly at the time, as other councils did.

"Instead they are now left with so much to pay as they owe these women many years of wages, with interest on top."

'Only worth £300m'

The Labour MP for Birmingham Edgbaston, Gisela Stuart, said selling assets to pay the bill was the only available option left.

"If you were the leader of Birmingham City Council at this point you have inherited a legacy of a huge legal bill, you're facing financial cuts, you're facing a situation where some of your basic services can no longer be delivered because of the funding formula.

"I think with a very heavy heart you face up to the fact that you're caught between a rock and a hard place, you get the best deal to settle what was a liability that should not have occurred."

Richard Taffler, professor of finance at Warwick Business School, said the process of valuing assets such as the NEC was done by predicting the future revenue and taking away the running costs.

"But it's not as straightforward as that because then you have to discount back to the present, because owing to inflation, £1 is worth less in the future than it is now," he said.

The trouble with valuing a venue such as the NEC, he added, is the uncertainty of its future performance and the amount of investment needed to make it profitable.

"[Birmingham City] council hasn't released a financial appraisal and estimate yet, but it's likely the NEC is probably only worth £300m.

"It is not especially cash-generative."