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Croydon In Crisis: Council forced to declare itself bankrupt

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EXCLUSIVE: ‘Devastating blow’ for the borough as it has issued a Section 114 notice, making it the first local authority in London for two decades to admit it has gone bust. By STEVEN DOWNES

Croydon is the first council in London to go bust in 20 years

Croydon Council’s finance director, Lisa Taylor, today succumbed to mounting pressure to issue a Section 114 notice, an admission by the local authority that it has gone bust.

The move will see day-to-day control of the council handed over to government-appointed commissioners. Croydon will become only the second council in England in 20 years to issue a S114 notice, and the first in London since Hackney in 2000.

The Section 114 notice bans all new expenditure at the council with the exception of statutory services for protecting vulnerable people.

Lisa Taylor: forced to act now

The move comes after six months of the council staff working with accountants, auditors and consultants inside Fisher’s Folly, and even with officials from the Ministry of Housing, Communities and Local Government, to avoid resorting to such an extreme measure.

But it also comes just two weeks after Robert Jenrick, the local government secretary, sent in a “rapid review” squad to look at Croydon’s “overall governance, culture and risk management”, to assess whether the government should give the council further help.

In her formal notice issued today, Taylor wrote, “Since the 23 October 2020, mindful of my statutory duty under Section 114, I have kept the need to issue a S114 notice under constant review.

“It is now my professional judgement as the [chief finance officer] for Croydon Council that in the current financial year (2020-2021), despite the ongoing conversations with MHCLG and the presentation of amendments to the General Fund budget at Cabinet on the 21 September 2020, that the forecast expenditure continues to significantly exceed resources, and plans to rectify this financial position are insufficient, leaving the council with a significant unfunded financial deficit this year.

“Therefore I have a duty to issue all members of the council with this S114 notice.”

Taylor gave a series of reasons for taking this action now, the principal one being a clarification last week from CIPFA, the local authorities finance professionals body, that the “free pass” waiver that the MHCLG had given councils because of the covid-19 pandemic would not apply to Croydon because, “Croydon’s financial pressures are not all related to the pandemic.”

Katherine Kerswell: even her Whitehall connections could not save Croydon

Katherine Kerswell, the council’s interim CEO, had also received a letter from the MHCLG yesterday. The letter states that Jenrick’s rapid review report may not be ready until the end of the calendar year – a month later than had been expected.

“In my view,” Taylor wrote, “this confirmation will arrive too late for Croydon to be in a position where it is able to deliver a balance[d] budget this financial year and therefore we will be required to issue this S114 notice.”

The council had applied to the MHCLG for a capitalisation direction – effectively a loan from the government in order to balance this year’s budget. Without Jenrick’s less-than-rapid review report, that money won’t be received soon enough.

The decision will be a huge blow for Hamida Ali, who was recently appointed council leader following the resignation of Tony Newman, and for Steve Reed OBE, the MP for Croydon North and Labour parliamentary spokesman on local government, who was a firm supporter of Newman during his six years in control of the Town Hall.

Since taking on the task of sorting out the mess created by Newman and his numpties, Ali – who was herself part of Newman’s cabinet – has repeatedly stressed the importance that Croydon continues to be run by the people from Croydon.

“There are painful decisions that lie ahead – decisions that we did not want to take, because we know the impact they will have on the most vulnerable people in our communities, who rely on the council and its services,” Ali said last month when her appointment was confirmed.

“But if we don’t make these decisions now, then we, as a town, will no longer be in control of our own destiny. The alternative is that the keys are taken away and that we, as local people, are shut out. It’s clear that is not what most local people want, nor is it in their interests.”

But that is now what looks most likely to happen.

Tony Newman: much to answer for over council’s financial collapse

“This will be devastating for our borough,” a Katharine Street source said today.

“I’m completely shocked. Since she arrived, the interim chief exec Katherine Kerswell has been at pains to point out to us councillors that there was no guarantee that the council’s capitalisation direction bid would be successful.

“But I think everyone thought that the bid would, at least, get as far as Robert Jenrick’s in-tray.

“Now it looks as if everything is about to be taken out of Croydon’s hands.”

Since February 2018, when Tory-controlled Northamptonshire County Council issued its S114 notice, that authority has effectively been under the control of a pair of government-appointed commissioners, who set about reorganising the authority’s finances and also breaking up the council into new bodies.

Northants was the first local authority in England to declare itself bust for 20 years when it was faced with a budget shortfall of nearly £70million. Croydon’s precarious finances have been tipped over the edge by covid-19, which has cost the council around £70million this year, leaving Ali, Taylor and Kerswell trying to find a package of savings of at least £42million.

Moves have been underway for three months to erase more than 400 jobs at the council, part of 15 per cent budget cuts, including through some compulsory redundancies.

But the shortcomings of Croydon’s Labour administration under Newman and his choice of chief exec, Jo Negrini, were laid bare in a damning Report in the Public Interest published by auditors Grant Thornton two weeks ago.

In their report, the auditors revealed that in September, Taylor, as the Section 151 officer, “drafted, but did not formally issue, a Section 114 report which was discussed with the then leader [Newman], the deputy leader [Alison Butler], the then interim chief executive [possibly Shifa Mustafa] and monitoring officer [Jacqueline Harris-Baker]…”

Grant Thornton’s report goes on to lay out a sequence of events, and was strongly critical of the borough’s councillors as they sleepwalked their way through the crisis. In one instance, the report states, “The scrutiny and overview committee on 25 August 2020 called in the cabinet reports ‘Responding to the Local Government Funding Challenge’ and ‘July Financial Review’ and raised a number of pertinent questions. In response to member questions, the Section 151 Officer confirmed that she could not guarantee that a Section 114 report would be avoided.

“Members of the scrutiny and overview committee accepted the responses received and did not refer the matter to full council.

“In our view this did not demonstrate an understanding of the urgency of the financial position.”

They might realise the urgency of the position now.

Read more: What is a S114 notice? What will it mean for the council?
Read more: Jenrick orders urgent inquiry into ‘unacceptable’ council
Read more: Brick by Brick has paid nothing to council
Read more: Council ignored five warnings on reserves
Read more: Council staff ‘are angry, upset and want answers’


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