CROYDON IN CRISIS: Government minister targets bankrupt borough when he tells LGA conference ‘Councils shouldn’t make investments for which they are not well-equipped’. By WALTER CRONXITE
It seems increasingly likely that Whitehall will insist on Croydon flogging off many of its commercial property assets and some Brick by Brick sites, following what has been described as a “strongly-worded” speech by government minister Robert Jenrick yesterday.
In November, Croydon became only the second local authority in 20 years to issue a Section 114 notice – effectively declaring itself bankrupt, unable to deliver a balanced budget.
Last month, Croydon submitted a detailed proposal to Jenrick’s Ministry of Housing, Communities and Local Government in a bid to secure finance to see the council through its £66million covid-shaped hole in its budget for 2020-2021.
But as more than half of the council’s financial shortfall this year is down to Brick by Brick’s failure to make loan repayments, interest payments or hand over any profits from its house-building projects, it seems unlikely that the government will be sympathetic to any deal unless Croydon makes its own contributions through flogging off some of its controversial commercial assets.
Speaking at the Local Government Association finance conference, Jenrick warned that he “won’t hesitate to act if it proves necessary” over councils’ commercial investments.
“I’d like local authorities to seize this opportunity to reduce their dependence on commercial income because if councils are unwilling to contain the risk from commercial strategies, government will inevitably need to take a more active role,” he said.
“Local authorities should now focus on delivering services for the residents they serve and not looking to compete with the private sector, distorting local markets.”
As well as Brick by Brick, in the last three years Croydon had borrowed £100million towards buying commercial property, such as the Colonnades centre on Purley Way and the Croydon Park Hotel.
According to the Local Government Chronicle, “Mr Jenrick appeared to take aim at Nottingham City Council and Croydon LBC, which both embarked on risky commercial strategies that have come undone, when he said that it is ‘difficult to see why’ a council should own and operate a hotel or an energy company.”
Jenrick said, “It is very easy… to end up taking on assets that the private sector has deemed to be too risky and toxic. We have to be extremely cautious about that.
“Councils shouldn’t take on novel or complex investments for which they are not well equipped with the right expertise.”
At the conference, the LGC reports that MHCLG’s director of local government finance Alex Skinner revealed that an “exceptional support scheme” has been designed for councils “left with unmanageable pressures”.
But Jenrick said that councils would not receive any such lifeline unless they had first attempted to pay off debts by selling off some commercial assets.
“Where in the small number of cases councils do find themselves in serious financial distress, [they should] robustly consider the future of their commercial investments as it wouldn’t be right to ask the exchequer, the broader taxpayer, to meet shortfalls without having done so.”
He said that he is also considering “more effective means” to intervene where councils are “taking on excessive risk”.
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