Only now is it beginning to emerge how Croydon escaped the ignominy of becoming the first London borough this century to issue a Section 114 notice and admit that they were broke: there was a deal done quietly with Whitehall to avoid dozens of councils across the country declaring they had gone bust.
Croydon, with its £1.5billion debts and woefully low reserves, had a narrow escape from “doing a Northampton” and did not issue a Section 114 notice.
But it is a remarkable truth that, despite the coronavirus crisis for local authorities across the country, not a single council has sent up the S114 distress signal. How could this be possible?
The reason is that the government has asked them not to.
According to a senior figure in local authority finances, the local government ministry feared that if one council issued a S114 notice, many others would swiftly follow. They said that Robert Jenrick’s Ministry of Housing, Communities and Local Government, “…could cope with one or two S114 notices, but they wouldn’t be able to deal with 20 or 30”.
In Croydon, the council called in the external auditors and finance directors in early May, and it has blocked all non-essential expenditure and is implementing 15 per cent budget cuts across the board – all the sort of emergency measures that you would expect a local authority to take if it had issued a S114 notice.
But a report in the latest issue of Private Eye suggests that it was around the same time that Croydon’s finances were spiralling out of control that Whitehall quietly eased its strict financial rules to avoid what might otherwise be the wholesale meltdown of local government in this country, as Town Hall after Town Hall risked falling like dominoes as they were forced to declare themselves bust.
Balancing the budget is a statutory duty for chief financial officers of local authorities. Two years ago, Northampton County Council resorted to the legal protection of Section 114 of the 1988 Local Government Finance Act when it could no longer pay its bills.
Yet this year, with councils up and down the country racking up an estimated additional £3.2billion spending in the first two months of the covid-19 crisis while denied most of their usual incomes, not a single one has haad to resorted to S114.
At the end of June, the BBC was reporting that without urgent additional government support, as many as five councils in England – Leeds, Wiltshire, Trafford, Tameside and Barnet – might resort to S114 as a result of the burden of coronavirus, “declaring themselves effectively bankrupt”.
City councils in Manchester (£133million in covid costs) and Liverpool (£58.6million) both came close to pressing the emergency measures button, too, but somehow managed to postpone making deep cuts, with emergency budgets planned for the autumn.
The BBC’s figures showed Birmingham City Council, with £212million, as the biggest-spending local authority during the crisis, followed by Essex (£171million), then Manchester. In London, four boroughs (Hackney, Camden, Haringey and Croydon) had each spent £50m or more between March and the end of May, usually enough to tip them into financial special measures.
Croydon’s cuts are an effort to balance the £65million overspend in the first weeks of lockdown – 22 per cent of its annual budget in less than eight weeks. “Yes, we are facing financial challenges, as so many councils are right now,” Negrini told staff in an email.
And then, just to worry the frontline workers who had helped guide the council through lockdown, Negrini added: “We have a plan in place.”
According to CIPFA, the Chartered Institute of Public Finance and Accountancy, their officials held talks with Jenrick’s department in May, when it was agreed that local authorities would have a quiet word with ministers before issuing a S114 notice, to give Whitehall the opportunity to intervene.
The Management Journal reported CIPFA’s associate director Andrew Burns saying that MHCLG “…could cope with one or two S114 notices, but they wouldn’t be able to deal with 20 or 30”.
Nearly 150 councils are reckoned to be in a coronavirus-related financial mire.
And Rob Whiteman, the CEO of CIPFA, has said, “We firmly believe that the issuance of a Section 114 notice in any area at the current time would be counter-productive. The last thing our communities need is a freeze on spending during a public health crisis.”
Whiteman confirmed that the government had agreed what he calls a “modification” to the guidance given to councils’ chief financial officers.
“The effect, in practice,” Whiteman said, “should mean a Section 114 report will not need to be issued while discussions with the government that would address the issue are in progress.”
And there you have it: no Section 114 notices, no crisis.
Trebles all-round among the exec directors. P45s for the frontline staff.
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