CROYDON IN CRISIS: There’s growing public demand for some degree of accountability over the council’s financial collapse, and there’s mounting evidence that the former leader of the council and his mates broke rules to push through his pet policies. By STEVEN DOWNES
It is now two weeks since a report was submitted to the Ministry for Housing Communities and Local Government after a “rapid review” of the circumstances which caused Croydon’s financial collapse.
That report will be crucial to Whitehall’s decision-making over whether to grant Croydon a bail-out loan to help fill the £66million hole in this year’s budget. The council leadership is expected to submit its application to MHCLG tomorrow.
Katherine Kerswell, the council’s interim chief exec, and Hamida Ali, the old-new council leader, will be making their submission to MHCLG without the benefit of seeing the rapid review team’s report. And while talks with officials at the MHCLG have been taking place since late summer, the Conservative government minister, Robert Jenrick, has made no further comment on the state of the Labour-run south London borough since labelling it as “unacceptable” and “dysfunctional”.
“I don’t think Tory ministers want to make this easy for us,” a senior council source told Inside Croydon.
“We still haven’t been told when the rapid review report will be published,” they said. “No specific reasons have been given for the delay, but the minister will want to take his time to consider the report and doesn’t plan to respond until after we have submitted our request.
“I don’t expect that we’re hear anything back until January.”
The rapid review follows a Report In The Public Interest from the council’s own auditors, another report by consultants into the running of the council-owned businesses, including Brick by Brick, and the issuing of two Section 114 notices by the council’s finance chief.
Another Katharine Street source suggests that enough evidence has already accumulated in these reports that could prompt serious action against some key figures who were still running the council as recently as September, including former council leader Tony Newman, the ex-CEO Jo Negrini and the long-time cabinet member for finance, Simon Hall.
“The auditors gave a red-flag to the additional £30million of borrowing they tried to push through to buy up unsellable Brick by Brick flats in the summer,” the source said.
“That deal’s been blocked from going through. But you have to look at who was behind it, who was authorising it. And there are other examples in the auditors’ report where the council’s rules, if not the law itself, were broken. At least one of the Gang of Four will be gone following the rapid review.”
The Gang of Four at Croydon Council is recognised to be the clique of Newman and Hall, plus Alison Butler, the former deputy leader and cabinet member for housing, and her husband, Paul Scott, the ex-planning chief who has somehow retained an influence on the planning committee.
The source would not elaborate on what action might be taken, but the events at the council in 2018 when £100million of additional borrowing was pushed through were bad enough to warrant critical commentary from Grant Thornton, the auditors, in the Report In The Public Interest.
“The council’s approach to borrowing and investments has exposed the council and future generations of taxpayers to significant financial risk,” they wrote.
“There has not been appropriate governance over the significant capital spending and the strategy to finance that spending.”
In May 2018, Newman and his cabal had been celebrating retaining control of the Town Hall in the local elections. Buoyed by this electoral success, the council’s Labour leadership now fancied a roll of the dice with public money in the casino of property speculation. They wanted to pay over the odds on the Croydon Park Hotel and to buy-up the struggling Colonnades retail park.
Such significant purchases using tens of millions of public money would normally be debated at full council and cabinet before going ahead.
But Newman, Hall and Butler used guillotine procedures at council which, as Grant Thornton described it, meant “there was insufficient time to discuss and challenge the strategy”.
The owners of the freehold of the 4-star Croydon Park Hotel had it on the market at £25million. Sources in the property business suggest it was being offered to potential buyers in early 2018 for £18million. In July 2018, Newman and Hall pushed through a decision at cabinet which saw the council buy the hotel for £29.8million. Their commercial property policy under which this purchase was made would not be agreed by the full council until October 2018.
As Grant Thornton describe it: “The Croydon Park Hotel was purchased by Leader decision in August 2018 under delegated powers agreed at the July 2018 cabinet meeting.”
As the Grant Thornton report states, the council established a £100million Asset Acquisition Fund, but without a full or proper debate.
The official council report to the meeting which would “approve” the strategy says, “The council has an aspiration to secure medium- to long-term revenue returns from sound property investment principally within the borough. If chosen carefully the revenue returns should be consistent and less prone to fluctuation due to the protection within the lease agreements. These returns will be key to future revenue income and enable expenditure on services.
“The council will be looking at the opportunity that property investment offers to help generate a secure revenue stream over the medium- to long-term. However, less secure assets that offer future revenue potential with higher returns that also unlock the development of strategic sites will also be considered. These may typically be part-vacant properties in district centres that requiring [sic] some degree of refurbishment or additional development to secure their full letting potential. Each opportunity will be assessed against a matrix. The matrix will have scoring against each of the key elements and categorise into Excellent, Fair, Good and Marginal investments.”
As Grant Thornton found, “The meeting had reached the time specified in the constitution for it to conclude before there was discussion of the medium-term financial strategy to establish the £100million asset acquisition fund or the Asset Investment Strategy. The guillotine procedure was therefore used to close the meeting and the reports were approved without further discussion.”
Effectively, Newman and Hall had railroaded the council into agreeing a policy under which they had already shelled out more £30million on a struggling town centre hotel.
As the auditors note: “This procedure is in line with the council’s constitution, however a significant strategy such as the medium-term financial strategy and asset investment strategy should have been re-considered at a time where members [councillors] had sufficient time to challenge whether the risk assessment and management within the strategy was sufficient and again indicates a lack of urgency in understanding the council’s financial position.
“It also indicates again the level of scrutiny and challenge by members in respect of significant expenditure was not good enough in terms of challenging decisions that were high risk in the context of the council’s financial position.”
None of this could have been possible without the agreement, some might suggest collusion, of some of the council’s most senior staff: Negrini, Jacqueline Harris-Baker, the former borough solicitor who was placed in charge of the Resources directorate, and Shifa Mustafa, the exec director for “Place”.
Elected councillors who tried to protest were silenced or ignored.
The deals represent a symbol of the council’s financial failure. As Property Week recently reported, “The council has collected no rent on the hotel since [Quarter 2 of 2020], when the tenant went into administration.” Whoops.
Yet the council now values the freehold as being worth more than they paid for it, at £30million.
Differences between the council’s valuation of its property assets and market valuation appear to be a recurring issue for Croydon. As Property Week reported, “Meanwhile, in November 2018, the council paid £50.4million excluding VAT for the Colonnades retail park in Purley Way, for which it collected just half the rent owed for Q2. The council values the asset at £49.2million, compared with Grant Thornton’s valuation of £46million.” Whoops.
Grant Thornton, according to their Report In The Public Interest, also values proper governance. “Good governance would require a strategy to be approved prior to the first purchase indicating a lack of transparency in the decision-making process,” they wrote.
If Jenrick’s reviewers’ report contains even a hint of this kind of criticism, it seems most unlikely that the Secretary of State will not look to take sanctions against those responsible for paying over the odds on a loss-making hotel months before they sought proper agreement.
Read more: Newman won’t say sorry, even to colleagues
Read more: Council ignored five warnings on reserves
Read more: ‘Tony Newman always has been a coward’
Read more: Council company struck-off over admin error
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