CROYDON IN CRISIS: Council finance director says that the loss-making house-builder’s failure to pay dividends was a primary cause of her issuing the Section 114 notice. By STEVEN DOWNES
More than half of the council’s forecast £66million overspend in this financial year, which prompted the issuing of the Section 114 notice yesterday, is because of Brick by Brick’s failure to make interest and revenue payments.
That’s according to Lisa Taylor, the council’s chief finance officer, in her report to councillors.
According to the figures provided by Taylor in her report, Croydon’s projected overspend has spiralled by around £20million in just a couple of months.
But Taylor’s report said that it was the “greater risk than previously anticipated” around Brick by Brick, “being able to make interest and dividend payments due to the council this year and for previous years” that was one of the main causes of her to resort to the S114.
According to Taylor, the council’s loss-making house-building company was due to contribute £36million to the council’s coffers this year.
Now, though, she has doubts whether Croydon will see a penny of that money.
Brick by Brick is more than three months late in publishing its accounts for 2019-2020 – a breach of the covenant that they agreed to when accepting loans totalling £260million from the council.
“The non-delivery of this income adds to the financial pressures and the council’s inability to deliver a balanced budget this financial year,” Taylor wrote.
In total, according to auditors Grant Thornton in their Report in the Public Interest, Brick by Brick has short-changed the people of Croydon by £110million in unpaid revenues and interest repayments since 2015. In that time, the house-builders have delivered just three purpose-built council flats, while also missing their target of providing 50 per cent (unaffordable) affordable homes.
The PwC report into the handling of the council’s subsidiary companies, including Brick by Brick, is expected to be released next week. Only after its contents have been properly assessed will Taylor and the rest of the council be able to decide how to utilise those and other assets – including Fisher’s Folly, the hugely over-priced council offices, which could also be put up for sale.
In her report, Taylor wrote, “In reaching the conclusion to issue this S114 notice today, I have had to make a number of judgements.
“At the time of writing this report there is a forecast general fund overspend at the end of the 2020-2021 financial year in excess of £30million. This, together with further risks of circa £36million likely to arise before the end of the financial year as a result of undeliverable income, in the form of dividends and interest payable from Brick By Brick.
“There are also potential risks in the treatment of the 2019-2020 costs arising from the ongoing external audit of the accounts. This all results in a forecast overspend in the region of £66m. The council does not currently have a fully deliverable, robust action plan to avoid a negative general fund balance this financial year.”
Taylor’s report to councillors said she made the call on S114 in part because of time pressures – local government secretary Robert Jenrick’s “rapid review” team, sent to Croydon to assess whether they should receive a bail-out, is not quite as rapid as promised.
Instead of delivering its report by the end of this month – and possibly rubber-stamping an emergency government bail-out loan that might have saved the Labour-run council – their report is now not expected until the end of the year.
And a change in guidance issued at the start of November by CIPFA – the Chartered Institute of Public Finance and Accountancy – said Croydon could no longer use coronavirus as an excuse for ducking a S114.
“Despite the council having put in place spending controls over the summer of 2020, non-essential cost have continued to be incurred,” she said.
“I am still not seeing an organisation that is taking the necessary radical decisions to stop all but essential expenditure.”
The document also says £17.7million of the £27.9million of “new savings” presented to Croydon’s cabinet and full council in September were “incorrectly identified as new savings”.
As a result, Taylor said that overspend “had not reduced by as much as previously reported”.
She wrote, “A financial crisis doesn’t appear overnight and Croydon Council has been experiencing rising financial and service demand pressures for a number of years as the Report in the Public Interest has described. While General Fund reserves have been held stable at £10million for a number of years,they have now reduced to £7million at the end of the 2019-2020 financial year and these are not enough to fund the predicted overspend costs this year, and therefore action must be taken.”
Taylor detailed other areas which had caused her enough concern to issue the S114 notice – something she had come close to doing two months ago.
The council’s budget development meetings, intended to identify savings over the next four years, “is failing to deliver the amount of necessary savings proposals and reduce growth demand”, Taylor noted. With council services already cut to the bone in many areas, it may well be that there is little left to cut.
According to Taylor, the finance review panel, which was set-up at the start of Croydon’s cash crisis in May and is chaired and attended by senior finance officials from other London boroughs, “gave a very strong steer at the meeting on the 5 November 2020 that they believed a S114 notice should now be issued”.
“There is now less than half the financial year remaining in which to deliver the savings required to balance the budget,” Taylor wrote. “I am not seeing the necessary level of pace, urgency or radical options to be presented to members to take decisions upon to give me confidence that the council can make the level of savings required to deliver a balance budget in year, without external support in the form of a capitalisation direction.
“This is unlikely to be confirmed before Christmas, leaving just three months in which to deliver balancing savings if the request is not approved.”
Hohoho, as no one working in Fisher’s Folly are saying as they look ahead to possibly the bleakest of Christmases.
Read more: Council forced to declare itself bankrupt
Read more: What is a S114 notice? What will it mean for the council?
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Read more: Jenrick orders urgent inquiry into ‘unacceptable’ council
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