With inflated claims of returns from the council’s house-builder being compared to a Ponzi scheme, a former council official says, ‘We are in uncertain times and the risks being taken with public money are huge compared to the marginal potential gains’.
STEVEN DOWNES reports
Croydon is the country’s biggest user of flexible capital receipts, flogging off
of public assets in the past year alone, according to research conducted by the Bureau of Investigative Journalism and published for the first time by Inside Croydon today.
It was painstaking research carried out by the Bureau which earlier this year revealed that Croydon Council had secretly sold six plots of publicly owned land to its in-house house-builder, Brick by Brick, for just £1 each.
These were just a handful of examples of parks, open spaces, kids’ playgrounds, libraries and other locally owned properties which the Bureau’s journalists found nationally that local authorities have been selling off – selling off the family silver – just to balance their books.
In fact all Croydon Council’s sales of land to Brick by Brick – to date all at below-market-value prices – are now subject of an investigation by the Ministry of Housing, Communities and Local Government – MHCLG – because none of the sales were made with the prior permission of the Secretary of State, as is required by law.
Under budgetary pressure from a decade of austerity seeing the council’s grant from central government cut by two-thirds, Croydon’s chief executive, Jo Negrini, and the Blairites running the Town Hall argue that the transfer of public property to Brick by Brick allows them to use the income to pay for local services. To date, after four years, there has been no profit from loss-making Brick by Brick’s developments.
The £29.3million in asset sales by Croydon Council in 2018-2019 is taken from the MHCLG’s official figures, published late last month in the Local Authority Revenue Expenditure and Financing 2018-2019 Provisional Outturn, England.
Yet again, Croydon tops a league table of local authorities, and once again, not in a good way.
Croydon flogged off more than twice as much property in the last accounting year than any other local authority in England.
The asset-stripping local authorities league table for 2018-2019 is here:
Croydon – £29,307,000
Surrey – £14,631,000
Birmingham – £14,482,000
Wirral – £13,863,000
Lancashire – £7,500,000
What the Ministry’s figures do not reveal is what was sold to raise that figure.
But the report, which you can access directly by downloading the Excel document here, also shows a particularly worrying additional statistic.
Because compared to its net 2018-2019 budget, apart from the already bankrupted, Tory-run Northamptonshire County Council, Croydon has the lowest percentage of usable reserves of any local authority in England.
Yep, Croydon’s top of another local authority league table…
Croydon – £24,622,000 (9.1%)
Thurrock – £11,406,000 (10.1%)
Medway Towns – £23,481,000 (12.8%)
Slough – £12,338,000 (13.5%)
Leeds – £74,577,000 (14.4%)
This does not compare very favourably with even the recent past.
In the early 2000s, Croydon had very little borrowing or debt when compared to other authorities.
More recently, the council has been taking advantage of historically low interest rates, and the very favourable rates offered by borrowing from central government – including to pay for the Fairfield Halls refurbishment, which has cost at least £41million, and also to lend on money to Brick by Brick.
The interest rates may be low, but they still have to be repaid. It is never free money and all adds pressure to the current account over the years.
Politicians of all stripes like borrowing to pay for assets, such as shiny, good-as-new arts centres or youth centres, as they can claim to the electorate that they are doing well in providing for the community. But they are storing up the costs for the future.
“It amounts to amenities on tick,” was the view of one less-impressed Labour councillor this week.
Like many other local authorities, Croydon has been borrowing to spend money on mainly commercial real estate, as it can make a margin over what it has to pay in interest through rents receivable. In the past year, the council has bought the Croydon Park Hotel for £25million (more than the asking price), and spent around £60million to buy up the Colonnades leisure centre and a McDonald’s and Nando’s off the Purley Way.
As recently as last month, in announcing the completion of the second part of the purchase of the Colonnades site, the council revealed that the deal is “generating more than £150,000 a year in additional income for frontline services…
“… The entire site is providing an annual income of around £1.4million net of interest and other costs, which will help protect council services for residents.” Our italics.
Note the party line of “protecting council services”, but also the fact that the council only refers to the gross income, and not to how much is left after deducting interest and other costs.
And this does indeed help in circumstances where government grant funding is being significantly reduced. This has been going on for several years, but in a climate where retail parks, hotels, old office blocks and other such commercial enterprises have questionable long-term futures. There has been widespread speculation that Negrini and council leader Tony Newman’s Plan B might be to demolish the buildings and use the Purley Way site for more Brick by Brick flats…
Back in the days when Jan Willis was the council’s director of finance, more than a decade ago, the council’s reserves had fallen as low as £250,000 – one-hundredth of what they are today. She was soon “replaced” by the now notorious Nathan Elvery.
Reserves were rebuilt, as strong Town Hall reserves are considered essential for good governance. Lesser reserves hamper what the authority can do in emergencies, such as the Purley floods or the Croydon riots.
Within all of this is the £100million-plus borrowing gamble on Brick by Brick, and possibly nearly half as much again for the Fairfield Halls. If there is a property crash like there was in the late 1980s – caused by Brexit or any other national economic weaknesses – “the council could be faced with significant losses”, according to a former senior council executive.
Speaking to Inside Croydon on condition of anonymity, they said, “We are in uncertain times and the risks being taken with public money are huge compared to the relatively marginal potential gains.
“There is a severe lack of experience among the directors of Brick by Brick, yet they have been lent such huge sums.
“The turnover of directors at Brick by Brick is also worrying, given that some of the directors that have left at least had some experience in the development sector.
“I wouldn’t buy shares in it, or any house builder at present. The 6.5 per cent rate of return on lending that they have the nerve to quote is akin to a Ponzi scheme.
“We shouldn’t forget that Fisher’s Folly, the council’s overpriced office building, ended up financed by council borrowing approaching £140million, when it was first planned that it would be privately financed.
“I’m not sure what capital receipts Croydon has secured, but the pot of assets soon runs dry, leaving a deficit on the current account. Such asset sales are really just kicking the can down the road, for someone else to deal with later.”
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Isn’t the alarm going off in the Labour Group ? One of the Councillors must be appalled at this financial mismanagement and placing Croydon on the verge of becoming another Northamptonshire County Council with no buffers against a bad turn of events. The hazard lights are flashing, but not one person is placing their head above the parapet.