KEN LEE, our Town Hall reporter, on how many of the failings from another council’s collapse can be recognised in Croydon’s crisis
A report published last month about the financial collapse of a local authority has eerily familiar themes and findings to the crisis which Croydon has found itself in.
Croydon has run up £1.5billion of debts – and rising – while having run down the borough’s reserves to just £10million before the coronavirus pandemic hit.
The leaders of Croydon Council, such as the departing chief executive Jo Negrini and the absentee council leader Tony Newman, have tried very hard to deflect all responsibility from their own handling of the council’s finances, blaming 10 years of Tory austerity and cuts to their grant from central government, and the £62million additional spending that they undertook to deal with covid-19 emergencies.
But according to Tony McArdle and Brian Roberts, who in May 2018 were appointed as commissioners to run Northamptonshire County Council after it went bust, that is exactly the kind of deflection and excuse that eventually forced that council to issue its Section 114 notice.
Northamptonshire’s S114 notice was the first of its kind in nearly 20 years, and signalled the council’s fear that it will not be able to produce a balanced budget, as required by law. The S114 notice was followed soon after by the resignation of Northamptonshire council leader and the sacking of the councillor in charge of finances.
Croydon – with some connivance from government as it feared several council’s collapsing under the covid-19 strain – has somehow managed to dodge the S114 process, probably much to Negrini’s relief as she redrafts her CV and submits applications for a new job.
But to all other intents and purposes, Croydon has been forced to undertake many of the measures that a S114 notice would require, including shedding more than 400 workers’ jobs, many of whom worked on frontline services through the pandemic lockdown.
One of the measures implemented in Croydon in June was the formation of an independent financial review panel, using outside local council finance experts and auditors. What is not yet known is what they have discovered as they have pored over Croydon’s books.
But as McArdle and Roberts’ damning report on the state of Northamptonshire’s governance makes clear, an on-going National Audit Office investigation into audit arrangements for local government, which may include Croydon, cannot issue its findings a moment too soon.
As Inside Croydon first reported, the council’s own auditors issued a stern warning about the borough’s finances after conducting a review at the end of 2019 – months before coronavirus created a multi-million-pound cashflow crisis.
Despite the warning they received, Croydon’s leadership – among them Negrini and Newman, and Councillor Simon Hall, the finance chief who spent millions on buying a hotel and drove its tenants into receivership – carried on adding to their debt mountain.
McArdle and Roberts’ interim report on Northamptonshire identified what they call “six fault lines” in the running of the authority, all of which were identifiable years in advance, yet were ignored by those in charge.
“To understand this is to understand that the situation was preventable,” their report states.
McArdle and Roberts list their fault lines as:
1, There was a failure of leadership at senior political and managerial level. “Rather than meet challenges head-on as others in the sector were doing, the council’s leadership failed to tackle issues, looked to lay blame elsewhere and chose instead to pursue fanciful remedies as opposed to tackling the issues the council faced… despite there being ‘many good, hard-working dedicated staff’… As far as staff were concerned the problems at the council were… directly caused by the failure of leadership.”
Or, as Croydon Council’s union members have been saying this week, “Where’s Tony?”
2, The council suffered from a lack of strategic direction. “The core of the organisation – its heart, had been hollowed out or badly outsourced and as a result it lacked capacity.”
3, Service failures stretched back many years. “By pursuing erroneous service delivery models instead of real changes in operating, some services received significant investment without any credible improvement plan…”. Veolia, anyone? “Other services were denied resources and in some cases effectively ceased to exist.” Croydon parks service?
4, The council failed to accept any challenge on any level from any quarter. “There was a ‘group-think’ mentality pursuing damaging and misguided courses of action while showing a consistent inability to accept the reality of the organisation’s predicament.” Something which will sound familiar to anyone having had to deal with Croydon Council, or the ruling Labour group, at any time since 2014.
In Northamptonshire, the report’s authors say, “This mentality undermined the council’s scrutiny function and the proper governance structures which could have provided effective checks and balances.
5, The result of these failures has been an enduring cultural malaise within the organisation. “There is a deeply ingrained fatigue and a learned helplessness throughout the organisation where failure has been accepted and to an extent expected.” This might be recognisable to anyone who observed Croydon’s children’s services department up to the point it failed its Ofsted inspection in 2017.
6, Falling out of this was the complete failure of financial management. The report’s authors state that in Northamptonshire, “Many elementary tenets of financial management were simply not in place. This was clear to us from the first week of the intervention when we asked for some basic financial and statistical information that is the norm in other councils but could not be delivered to us.”
McArdle and Roberts call all of this “A very public demise”.
“Underpinning each of these fault-lines is the extent to which many of them had become enduring. It has been clear during the intervention that rather than suddenly falling into crisis, the council had in truth been steadily moving towards its inevitable collapse for at least seven years prior to the intervention.
“This failure of leadership and accompanying poor financial management was often played out in the public arena,” they wrote.
Among Northamptonshire’s observable signs of impending collapse were decisions to keep that authority’s Council Tax low. Both Tory and Labour administrations in Croydon had both decided not to raise the borough’s Council Tax in key, pre-election years in the past decade.
In Northamptonshire, the council’s “…reserves were depleted without a plan for their replenishment.” By March 2020, Croydon’s reserves were down to £10million – so low that Croydon failed a resilience test on its finance run by CIPFA, the national body for local council finance directors.
Also in Northants, “High-profile service failures such as the inadequate rating for Children’s Services in 2013… compounded by a subsequent loss of staff resulting in a chaotic service.” Croydon’s children’s services failed its Ofsted inspection in 2017. Nearly £25millionwas spent in two years to drag it back to a “Good” rating by March 2020.
McArdle and Roberts note that Northants had had adverse opinions from external auditors in 2015-2016 and 2016-2017. Croydon got its adverse opinion in January 2020, although the auditors’ previous report was also less than glowing.
In addition, they also noted that Northamptonshire had “a high turnover of senior staff”, something which continues to occur in Croydon, especially if you include the churn of employees going on at the wholly owned development company, Brick by Brick, under the “leadership” of Negrini appointee, Colm Lacey.
Croydon’s finance review panel is expected to issue its first report next month, after their first three months’ work. Will they find six “fault lines” in Croydon’s financial management?
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