Does bankruptcy threaten Gibraltar?

*Birmingham has gone bankrupt, and Gibraltar is on the same path due to impending payment claims

*The only way out is to pay

*Gibraltar does not have a legal process similar to that imposed on UK councils by law

* The current Prime Minister and the government would be wrong and must act

* It will be necessary to legislate in our Parliament

*Therefore, the political influence is higher than that of the United Kingdom Council

*All politicians limited the financial problem to obtain electoral gains

*Time is running out before financial problems get worse

The government will be forced to take unpopular measures

* Explanation of the process «Article 114 NotificationFrom the United Kingdom, this means a spending freeze

* There is no need for a similar process in Gibraltar’s legislation to freeze spending and put things right

* The burden of paying out of the fiscal crisis will fall on all of us

Birmingham example

Gibraltar appears to be on a similar path to bankruptcy as Birmingham took to reach that destination. The current bus drivers’ strike for better wages shows what we can stand up to. It appears to be a springboard for further inflation-induced wage claims that will add to the already unsustainable burden on public finances. Ultimately, in Gibraltar, we all have to bear the costs of getting out of any monetary bind we face. Our politicians must stop playing games with us. They need to tell it like it is and what they are going to do to get us out of the undoubted fiscal deficit we face. Earlier this week, Birmingham City Council, the largest local authority in Europe, has declared bankruptcy. In short, you cannot meet your ongoing financial obligations in a way that balances your books.

There is no constitutional process for Gibraltar

The difference between Birmingham and Gibraltar is that Birmingham is required to follow a legal process. There is no similar legal process in the Gibraltar Constitution. The recourse in Gibraltar appears to be for the Government to take full political responsibility for taking measures of the type available to local councils in the United Kingdom.

The blame for the individual harm these measures will cause will fall on the acting Prime Minister and the Government. He will be forced to act in a way that hurts the pockets of citizens. The resulting chaos will be obvious. It will cause unrest and civil disobedience, which previous governments have sought to avoid in the short term. The British system somewhat protects local politicians from the harsh effects on individuals of bankruptcy. This is what must be done on the ground and under the law. It is objective, not subjective. It is subjective decisions, such as those to be taken in Gibraltar, that lead to the pointing of the finger of blame at individuals, that is, at the rulers.

The problem disappears

Our politicians, by acting with unsustainable financial generosity in recent years, have been pushing the problem into the future. In this way, they will not harm their direct electoral chances of being re-elected. It’s a policy that has only one outcome: hitting a wall when the money runs out. Well, time seems to be running out fast. The actual wall of insolvency is fast approaching as inflation-driven wage demands begin to hit the current government. Unpopular measures must be taken to raise the funds needed to fill the public treasury and meet public debt obligations as they arise.

There is no longer room to ask for more loans. If the UK guarantees more loans, all it will do is widen the gap. Moreover, the burden of public debt will become heavier, as the requirement for immediate repayment will loom over the country. The disaster this blog is accused of will only be true. What is preached in this blog is financial wisdom, care and avoiding waste. There was no attempt to call for disaster.

operation in the United Kingdom

In the UK a council such as Birmingham, when it is unable to meet its financial obligations, is compelled to issue a so-called ‘Section 114 Notice’ under the Local Government Finance Act 1988. The City Council Finance Officer has the strict legal obligation to issue this notice if he deems that The city council will not be able to pay the outstanding debts with its income. The Section 114 Notice states that there is a problem with your ability to pay when it is due. Once issued, the relevant council cannot incur new spending commitments. They must meet within 21 days and discuss a way forward, including exploring all options. Most of the municipalities in this situation had to adjust their budgets to recover more money and reduce spending. The immediate effect of such a notification is that all new spending, other than what is necessary to protect vulnerable persons and scheduled services, ceases immediately. Simply put, the bank closes its doors and no more checks can be signed or paid, and no more payments are permitted, with few exceptions, until City Council replaces the current budget with a balanced one.

What can Gibraltar do?

In Gibraltar, our government will have to legislate to emulate the events that followed the issuance of the ‘Section 114 Notice’ in the UK. It will have to freeze spending commitments to protect vulnerable people and public services. You will then need to submit and approve a balanced budget. Exactly how this balance is achieved cannot be determined, but one thing is certain: Taxes, fees, rents, fees, and most other government collections will have to increase. In short, we will all pay. The United Kingdom may not have any constitutional obligations, but as the “lender of last resort” to Gibraltar, it can exert enormous influence on what our government needs to do in these circumstances. The Gibraltar and British governments will have to take into account the impact of these events on public indebtedness.

We will pay

The burden will fall on all of us in Gibraltar. The reality of the British councils’ legal framework makes it clear that the UK central government does not get involved in the event of a council’s bankruptcy. Those who live within the affected city council area are affected by the cuts and must find money and pay. The same logic likely applies to Gibraltar. Proof of this is the UK guarantee of a £500m Covid loan. The UK did not give us any money. They helped us borrow it, but we’ll have to pay it back with interest. It is a bit late, but we really need responsible financial governance. Our Constitution needs provisions that guarantee that responsibility. Moreover, our politicians have to face reality and tell us some hard truths that we will have to face in the coming years.