It might not fill anyone with much confidence when the councillor in charge of cash-strapped Croydon’s finances brushes away more than £1million as if it didn’t matter, as he seeks to justify the council’s parlous financial situation, which includes a record £1.5billion of debt and lower reserves than at any time in the past six years.
But that’s what Councillor Simon Hall tried to do last week, in a memo sent to his 40 Labour councillor colleagues.
After a prolonged period of stunned silence during the various crises being handled at Fisher’s Folly, Hall’s email was sent off to Labour councillors last Tuesday, when Jo Negrini, the council’s chief executive, had yet to agree to her exit terms – which sources at the council suggest may have been first offered to her by Hall and potentially could end up costing the Council Taxpayers another £200,000.
Since May, the council has been undergoing an urgent financial review, including consultation over more than 400 council jobs. In his email, Hall responded to calls from council staff’s trades unions to extend the jobs consultation period.
Hall’s lengthy email repeats many of the themes – or excuses – that will be familiar to Inside Croydon’s loyal reader: it’s all Tory austerity’s fault (though many other councils, of all political persuasions, don’t appear to be as deep in the financial mire as Croydon), the government doesn’t treat Croydon fairly over funding (which is true) or provided enough help towards the costs of caring for unaccompanied asylum-seeking children (which even local Tories concede is also true), and it is all covid-19’s fault. Which is also true, but only up to a point.
Before the pandemic hit, costing Croydon an unbudgeted £62million of unforeseen spending by the end of May, both CIPFA, the national local government accounting body, and the council’s own auditors had issued warnings to Negrini, Hall and colleagues that Croydon’s resilience in an emergency was enfeebled because of the borough’s reliance on capital borrowing and its historically low reserves.
Hall is clearly coming under particular pressure. After being the Labour politician in charge of Town Hall finances for six years, it is Hall who has allowed debt to rise by 50 per cent from the level it was at in 2014.
And it has been Hall who has been the enthusiastic cabinet member authorising the policies behind Brick by Brick, the loss-making house-builder to which the council has lent £260million (according to the company’s own business plan), and to dabble in the commercial property market, including paying £5million more than the asking price for the Croydon Park Hotel – and then forcing the hotel’s tenants out of business with too-high rents, even during lockdown, and putting another 92 people out of work.
This latest piece of financial wizardry even saw Hall make his debut appearance in the columns of the latest edition of Private Eye magazine – something from which some less-capable local councillors find their political careers never recover.
In his email to Labour councillors, Hall justifies his misadventure into the realms of commercial property management by saying, “In terms of investment assets, the council has received more net income than the interest costs associated with the loans, both overall and on each asset.”
That is because the council borrowed from the government’s Public Works Loans Board at historically low interest rates. When those rates go up, or if the government blocks public money being used in such a manner, Hall’s cunning plan could be scuppered. Certainly, as far as the Croydon Park Hotel is concerned, the council will have received not a penny in rent since the end of May – at a cost to the council of more than £400,000.
Here’s Hall’s email to councillors in full:
It is a few weeks since the Group was last updated on the Financial situation. Given the speed at which events are evolving and misleading/false information being put out by political opponents and local bloggers, I thought it would be useful to update you on some key areas.
Historic underfunding, worsened by many parameters having been frozen a decade ago (some stats come from 2001 Census), when the borough has undergone huge growth in number of homes and population and significant demographic growth (many more older people, people forced out from Inner London from Tory benefits reform)
75% real terms cuts in main government funding since 2010, equivalent to over £100m per annum
If we were funded per head like the lowest funded Inner London borough, we would have nearly £30m more per annum and if we were funded like neighbouring Lambeth, we would have over £80m more per annum
Net [Unaccompanied Asylum Seekers] costs in the last three years has cost Croydon taxpayers well over £20m and is forecast to cost c.£5m this year, even with increased Home Office funding.
The Council’s general fund reserve has always been low, £11.6m in 2010, £11.6m in 2014 and now £10.4m, so virtually unchanged throughout a decade of austerity.
Budget prepared before covid-19 based on a set of challenging assumptions, but also with a £3.7m contingency (compared to £2m in 19/20 and £1m under the Tories)
Quarter 1 forecast suggest £49m overspend. Covid-related net impact is £44m per latest MHCLG return, ie accounting for 90% of the overspend,
The covid costs were estimated at £85m in the first returns to MHCLG [Ministry of Housing Comminities and Local Government].
The covid shortfall of £44m is made up of:
extra costs 30
lost income 13(*)
unachievable savings 25
cash received to date (24)
(*) There is an estimated council tax and business rates shortfall of £27m, which does need to be funded this year but will need to be repaid over the next three years.
MHCLG has indicated there will be compensation for certain categories of lost income, covering three-quarters of the shortfall after the first 5% of income loss. This could be worth £5-7m but, as the guidelines have not been published, nothing has been included in the above numbers.
The LGA has estimated a national shortfall for local government of some £7bn and London Councils has estimated the London shortfall at some £1.4bn. Croydon is lobbying both directly and through the LGA and London Councils.
Tackling the in-year challenge
In order to provide insight and support and to give extra credibility to external stakeholders, a Finance Review Panel was set up three months ago. This is made up of a Section 151 officer with a national role as independent chair, the Executive Leadership Team, a London borough chief executive, the Chief Executive of Croydon Healthcare, Alison Butler and myself. The auditors attend the Panel meetings.
As part of addressing the financial challenge, controls were introduced in May on discretionary spend, recruitment freeze and reduction of agency workers.
There is work going on across the Council on a number of key areas to address the in-year challenge. Whilst some are one-off in nature, many of these will benefit future years and help address the challenge of future years, given the Tory government’s ongoing attacks on local government.
Key areas include:
Current staffing review and further staffing initiatives
Review of capital programme and provision policy
Review of options rejected as part of 20/21 budget development
Development of new cost saving initiatives
Review of fees and charges
Developing partnerships (e.g. NHS) & lobbying (e.g Home Office)
Application for a capitalisation directive from MHCLG
Positive progress is being made in all areas and any significant decisions will go to relevant cabinet members and/or the whole political cabinet. This will ensure that the approach taken is consistent with this administration’s ethos and manifesto.
The proposals put forward in July involved over 400 posts being deleted. Priority was given to deleting vacant posts and ending agency contracts. This left c.175 potential redundancies. As part of further minimising the redundancy
However, there is a targeted voluntary severance scheme and the redeployment pool has already been opened up.
The official 45-day consultation period ended on 21 August. However, to make sure that any late responses from the unions can be considered, there is sufficient time for senior management to consider the alternatives put forward and time for relevant cabinet members to be consulted, the meeting between senior management and the unions to present the final measures has been postponed to 9 September.
Issues have been raised around the Council’s debt levels.
The debt as at 31 March is c.£1.5bn
Half of this has its own dedicated income streams.
In terms of major components of borrowings in recent years,
Housing – c. £600m
Education (building schools when the Tories were not fully funding the need for school places) – c. £200m
BWH/ Davis House – c.£150m
Investment Assets – c.£100m
In terms of investment assets, the Council has received more net income than the interest costs associated with the loans, both overall and on each asset.
Approach on Council Tax
The Tories focused on freezing Council Tax for most of the time they were in power
In 2014, the Tories gave a one-off £3.2m reduction in council tax bills, as part of desperate attempts to influence voters
Since 2016, the Labour council has increased Council Tax and adult social care by the maximum amount allowed, in order to fund frontline services
Medium Term Financial Strategy (MTFS)
Work is starting on developing a new three year MTFS. This is built around our key priorities going forward:
transformed digital approach
radical locality approach
delivering to the most vulnerable
ensuring good growth, including genuinely affordable housing
I hope this provides you with a useful insight. Please always feel free to contact me to discuss any of the above or any other queries or concerns you have.
Warm regards, Simon
Or perhaps it just reads like a plea from someone to be allowed to continue in their cabinet post.
Councillor Hall receives £44,000 per year in Council Tax-funded allowances. To date, no council cabinet member has resigned over the state of the council’s finances.
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