EXCLUSIVE: STEVEN DOWNES reports on the dire financial crisis facing the Town Hall
External auditors have been working in the council offices at Fisher’s Folly since yesterday, trawling through the fine detail of the borough’s finances.
According to Katharine Street sources, Croydon is “about to do a Northampton”.
That’s a reference to the county council in the East Midlands, where in February 2018 they admitted that the local authority was heading for a £21.1million overspend. They issued a Section 114 notice, under the Local Government Finance Act 1988, imposing immediate spending restrictions. Northamptonshire’s Tory-led council had been desperately trying to balance its books, despite waves of relentless cuts from central government. The S114 order was an admission of defeat, the running up of the white flag.
For Croydon, the possibility of a Section 114 order is now “imminent”, according to council sources.
The borough’s finances were already overstretched when the council set its Budget in March. Indeed, a report to the council from their own auditors, Grant Thornton, had warned, “the authority’s finances [are] under considerable strain”. The costs of providing services to 330,000 residents in the midst of the coronavirus emergency could have pushed them beyond breaking point.
Sources suggest that 30 per cent cuts to spending – around £100million – will be needed. That could see hundreds of council staff jobs at risk, with no recourse for them to any furlough scheme. And while statutory services such as adult social care and children’s services are ring-fenced, other aspects of the council’s activities seem certain to take a big hit.
When the Town Hall Budget for 2020-2021 was passed just a few weeks ago, the council’s own figures showed it had already built up debts of £1.5billion – the most in the borough’s history. Projections for the next financial year, 2021-2022, planned for even more borrowing, with the total reaching perhaps as much as £2billion.
In the past, Croydon has faced short-term emergencies – the 2011 riots, the Purley floods – in a robust financial position, with strong reserves to dip in to and pay for the unexpected costs. That’s not the case today: since Jo Negrini became the council chief exec in 2016, the borough’s financial reserves have been run down to just £10million.
“Things were bad enough before covid,” one source said.
“Now we really have found ourselves up shit creek without a paddle.”
It’s not as if no one warned Croydon about a possible financial calamity.
As recently as February, councillors on the scrutiny and overview committee were noted to have “concerns” about the current level of council reserves in the General Fund Balance, “which was perceived to be low”.
And the following month, councillors on the General Purposes and Audit Committee were handed a report from auditors Grant Thornton which stated, under the heading, “Ongoing Financial Sustainability – Risk” that, “The authority is continuing to face pressure on delivering its services within the agreed budget with particular pressures on Adult Social Care and Unaccompanied Asylum Seeker Children as well as increased demand for temporary accommodation and the impact of nil resource to public funds.
“These are putting the authority’s finances under considerable strain.
“Therefore the authority needs to manage its resources carefully to ensure a sustainable future for the borough…”.
Then, Grant Thornton reckoned that the biggest spectre on the horizon for Croydon Council was the unknown impacts of Brexit. “The authority will need to monitor developments [closely] as the end of March approaches,” they warned then.
Of course, unlike Croydon’s previous emergencies, this pandemic is not a short-term hit on the council’s finances. As well as increased outgoings, the council is having to cope with a sudden loss of its usual income.
Two-thirds of the council’s income is from Council Tax. Estimates suggest that with the “Council Tax holiday” provided to residents as part of the government measures for the lockdown, Croydon’s bank balance will have taken an immediate £35million hit in April and May.
That lost revenue will be paid at the end of the year, but in the meantime it has left a hole in the Town Hall coffers that cannot be covered, as Negrini’s council tries to deal with a cashflow crunch.
Croydon’s planned “budget deficit” looks as if it could grow into a chasm.
Earlier this week, the Labour Party warned of impending doom for local authorities caused by the coronavirus emergency, creating a £10billion “black hole” in council finances, as the Tory government appears to back-pedal on previous commitments to councils to spend “whatever’s necessary”.
Little will Steve Reed OBE, the MP for Croydon North and Labour’s opposition spokesperson on local government, have realised that an example of such a crisis was about to hit so hard and so close to home.
In February, as part of the annual budgeting and Council Tax-setting process, Croydon unveiled what it calls its “Medium Term Financial Strategy”, outlining spending plans until 2022. Pre-covid, it showed a budget gap of £5.8million for the last financial year (2019-2020), plus £12.5million in the current year, and £7.7million in 2021-2022. Oh, what the council cabinet member responsible for finances, Simon Hall, would do for such “modest” figures as those now.
The pressures of emergency spending have prompted urgent meetings between Negrini and senior elected figures, such as Hall and council leader Tony Newman, and led to the suggestion that an outside body will be brought in to conduct some significant financial restructuring next month.
Before Northamptonshire, the last council to issue a S114 order was Hackney, in 2000. Then, they were able to turn to the Audit Commission to help sort out their woes – but thanks to “Big” Eric Pickles, the Commission no longer exists. One suggestion is that Croydon might call in audit experts from the Local Government Association to assist in sorting out their plight.
Once a S114 order is issued, a local authority has 21 days to juggle its books and come up with a solution to satisfy central government – making the tough calls about what services to cut or what assets to sell-off might come easier to less-involved third parties from outside the borough.
Of course, there is another option for the council to improve its financial situation, and that would be to increase Council Tax. The last time Croydon found its finances in a similarly parlous state, in 2005, they opted to hike Council Tax by 27 per cent. Part of the council leadership at that time was Tony Newman.
Inside Croydon today asked Jo Negrini and Tony Newman whether they could deny that outside auditors were working in the council offices, or to rule out the possibility of Croydon having to issue a Section 114 order. Neither of them had responded by the time of publication.
Back at that scrutiny meeting in early February, the council’s finance director, Lisa Taylor, was asked by councillors, “whether the proposed budget met the requirements for a sound budget?”
According to the council’s minutes, “It was confirmed that this was the case, although it was highlighted that there would be a need for continual monitoring of the budget throughout the year along with the agility to respond quickly to any challenges as they arose and to address them accordingly.”
The next couple of weeks will show how “agile” and “quick” the likes of Negrini and Newman really are.
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