(Bloomberg) -- The UK government said it will appoint commissioners to take over the Birmingham City’s council, a dramatic move that underscores the perilous state of local authority finances after years of squeezed budgets.

Communities Secretary Michael Gove told Parliament on Tuesday that Birmingham is “failing to comply with its best-value duty” after effectively filing for bankruptcy this month. “It’s imperative to protect the interests of the residents and taxpayers of Birmingham and to provide ongoing assurance to the whole local government sector,” he told lawmakers.

The Labour-run administration representing the the UK’s second-largest city issued a so-called 114 notice after it was hit by a crippling legal bill which compounded a £87 million ($109 million) shortfall this financial year. London commuter authorities of Woking, Thurrock and Croydon have taken the same step, which halts all but essential spending on local services. 

The issue has raised questions about the level of funding available to local councils, with demands on them soaring due to an aging population and the impact of soaring interest rates and a cost-of-living crisis. Risky investments by councils which have turned bad have also played a major part.

While Birmingham’s council is Labour-led, the opposition party went on the attack in Parliament, blaming Conservative-led governments of diverting funds away from councils since taking power in 2010.

“Local authorities are struggling,” Labour’s communities spokeswoman Angela Rayner said in response to Gove. “The truth is this crisis in local government has been caused by the Conservatives’ wrecking ball with every swing.”

Read More: The Extraordinary Reasons Why Parts of Britain Are Going Bust

--With assistance from Eamon Akil Farhat.

©2023 Bloomberg L.P.