A consultant ‘parachuted in’ to salvage the council’s rocky finances will deliver a vital report next Tuesday, STEVEN DOWNES reports, as Croydon’s £1.5bn borrowings have been described by a local MP as ‘reckless’ and its financial position ‘unsustainable’
The dire state of Croydon’s council finances, with debts ballooning over £1.5billion and the borough’s income streams drying up, are understood to have been brought to the attention of a meeting held by Labour Party leader Sir Keir Starmer and his senior Westminster team today.
The discussion occurred as it emerged that Croydon’s mountain of borrowing includes £295million in short-term loans from other local authorities. That figure places Croydon fourth in a table of councils who are indebted to other local authorities.
Those loans are in addition to the £260million which Croydon is known to have borrowed from the Public Works Loans Board to pay for Brick by Brick, the council’s in-house house-builder. That borrowing is also under scrutiny from a parliamentary watchdog.
As Inside Croydon revealed exclusively yesterday, with auditors poring over Croydon’s books to try to find a way of averting complete financial collapse, sources inside Fisher’s Folly say that council chief executive, Jo Negrini, faces a “big meeting on Tuesday”, when “a consultant they’ve parachuted in”, believed to be a former local authority finance chief, is to deliver recommendations on how the council can dig itself out of a hole largely of its own making.
Negrini is then scheduled to have a meeting with council leader Tony Newman on Wednesday.
With the council possibly even running out of money to pay its staff (pay day is just around the corner), that could be when a decision has to be made over whether the council’s finance director, Lisa Taylor, needs to issue a Section 114 order, effectively to shutdown all council spending for at least three weeks.
The suggestion is that the council is facing cuts across all departments of as much as 15 per cent – cuts to a budget that was only approved by Newman and the full council just a few weeks ago.
“You can kiss goodbye to any non-statutory services,” the source said.
“Finance have no clue on spend versus budgets. They forecast about as well as Michael Fish did before the big storm in 1987.
“It’s a shambles.”
Newman and his cabinet member for finance, Simon Hall, are expected to blame Croydon’s plight on the covid-19 emergency and Boris Johnson’s nasty Tory government. And while both positions have some validity, Croydon’s deeply indebted state was well-established long before the pandemic was declared. The risks of the mounting debts and “low” reserves were the subject of warnings from the borough’s auditors and councillors on the scrutiny committee earlier this year.
In the last eight weeks, Croydon has had more than £17million from the Ministry of Housing, Communities and Local Government as part of the coronavirus emergency funding, though that is proving inadequate to make up for the borough’s lost income from Council Tax.
Reed is Labour’s shadow spokesman on local authorities in parliament, and the perilous plight of the council in his own constituency is likely to have focused minds at Sir Keir Starmer’s regular meeting today.
The political fall-out could be wide-ranging for Labour: Reed’s Croydon North seat is safe enough, seemingly, but Croydon Central, held by Sarah Jones, is regarded as a marginal seat.
In local elections, the consequences could be much worse for Labour. We are less than 12 months away from London Assembly elections in which the Labour candidate for Croydon and Sutton is Patsy Cummings – who just happens to be the council’s deputy cabinet member for… finance. That will prove too good to ignore for her Tory rival.
And in 2022 there will be Town Hall elections and, very possibly, a vote for Croydon’s first democratically-elected mayor. Newman’s increasingly unpopular cabal could suffer a real double whammy.
The rapidly developing situation at Fisher’s Folly has emerged just as the Bureau of Investigative Journalism has published research which shows that Croydon is one of this country’s biggest borrowers from other councils.
It may seem extraordinary for those familiar with Croydon’s permanent pleading of being pot-less, but some councils actually do manage to have enough surplus cash that they have been able to lend other local authorities many millions of pounds.
Government figures show that Croydon has lent money out as well as borrowed – loans from the Public Works Loans Board, for capital projects that are not yet ready to progess, cannot simply be shovelled into a general finance account, so it becomes expedient to lend some of that money on.
But Croydon borrows from other councils far more than it lends. The balance nearly topped one-third of a billion by the end of the third quarter of 2019-2020.
Much of that money is what is known as “short lending”, not the kind of long and steady borrowing prudent borough treasures have tended to prefer. And, given the current circumstances and the state of other local authority finances, it will be money that the lenders will be keen to see returned promptly by Croydon, with interest.
According to the Bureau’s research (to the end of 2019), over the past couple of years Croydon had taken out 39 such loans at rates of interest between 1.05 per cent and 1.25 per cent. All have been explained by Croydon in its response to a Freedom of Information request as “temporary finance for capital programme”.
The biggest council-to-council lender to Croydon is the City of Westminster, with two loans each of £10million.
Where some of the pressure might be being felt in Fisher’s Folly is on those short loans – some which were taken just 12 months ago – which have been due for repayment since the covid-19 cashflow crunch started to be felt: Chelmsford will have wanted their £5million back on April 30, Guildford will have expected their £5million loan to be repaid on May 5, Elmbridge were due a £5million plus interest payment on May 14.
This is where it could become a bit of a Mexican stand-off between the Croydon cabal and the Whitehall mandarins at the Treasury.
As the Bureau reports, “No council has defaulted on a loan to date – and it’s a common assumption in local government finance that if one ever did, the national government would have to step in.”
Across the country, there has been a significant increase in council-to-council borrowing in the past five years, from £4.5billion to £11.9billion at the end of 2018-2019. Thurrock, in Essex, with more than £1billion in loans from other councils, has by far the greatest exposure. But Croydon, with £295million, is the fourth biggest borrower from local authorities – with more than the county council in Surrey or the city of Birmingham.
But where Croydon could also feel the squeeze is its borrowings from the Public Works Loans Board to pay for Brick by Brick or for its equally speculative dalliance in commercial property. The PWLB was never intended to accommodate borrowing on a grand scale to fund councils’ financial investments, and parliament’s Public Accounts Committee is looking to shut down this misuse of public money.
“If local authorities take on substantial debts to make commercial investments with the aim of supplementing their ordinary revenues, there are two big concerns,” Don Peebles, the Chartered Institute of Public Finance and Accountancy’s head of policy, told the Bureau.
“One is that this debt has to be repaid irrespective of whether those investments perform, and second there is the concern that council services will become dependent on commercial income.”
Even Croydon South’s Conservative MP, Chris Philp, has raised concerns about how his local council is borrowing to speculate, accusing the council of being “reckless” and saying that its financial position is “unsustainable”.
In a letter last month to local government minister, Robert Jenrick, Philp wrote, “In the past 18 months Croydon has indulged in speculative property investments such as the purchase of The Colonnades – a secondary retail/leisure park – at a cost of £52million (November 2018) and Croydon Park Hotel at a cost of £30million in September 2018.
“In December 2019 they purchased a further two warehouse properties at a cost of £14million.
“In addition to this, the council has invested millions of borrowed monies in speculative property investments.
“I am concerned that such reckless spending with Public Works Loan Board money is now putting Croydon Council into a financial position which is rapidly becoming unsustainable.”
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