Site icon Inside Croydon

Councillors were warned of financial crisis months in advance

insidecroydon

CROYDON IN CRISIS: All but one of the borough’s Labour councillors voted that they had ‘confidence’ in Tony Newman and Simon Hall last year – just weeks after they had received a briefing note that told of an £85m budget deficit and 400 council job cuts being made under the duo’s leadership. EXCLUSIVE by STEVEN DOWNES

Advance warning: Labour’s councillors got a briefing on the borough’s financial collapse in July last year

Croydon’s Labour councillors received a full warning of the dire state of the borough’s finances in July 2020 – two months before auditors delivered a devastating Report in The Public Interest and four months before the council was forced to effectively declare itself bankrupt by issuing a Section 114 notice.

Inside Croydon has obtained a copy of the warning, which came in the form of a two-page briefing document that, after the first three months of the covid crisis, outlined an overspend in the year’s budget of £85million and measures that were already being taken to claw back some money, including the axing 400 council jobs.

The briefing note was written by Simon Hall, who had been the council cabinet member for finance for the previous six years.

Today, a Katharine Street source who has been shown the document, told Inside Croydon, “There’s no way any of Labour’s councillors, having read this briefing note, could possibly claim that they were not warned about the council’s financial crisis.”

In his note, Hall advised his Labour colleagues, “There is no easy way to close a gap that is 8 per cent of our gross expenditure and 20 per cent of our net expenditure.

“We must remember our reserves are £10million for General Fund alone and £32million for general and earmarked reserves combined.

“In order to avoid Section 114 and its consequences and in order to keep control of our destiny and make sure our actions, whilst tough, are consistent with our ethos and our manifesto, we have started taking action for over two months,” Hall wrote.

Simon Hall: knew how weak council finances were within weeks of covid lockdown

It was barely a month later when the council chief exec quit her job, taking a £440,000 pay-off with her (many believe the payment may have been authorised by Hall). In November, the council finally issued its dreaded S114 notice.

Newman and Hall had already resigned their leadership positions by then, and they were soon after suspended by the Labour Party, leading to their resignations as councillors earlier this year. Newman had been the leader of the Labour group at Croydon Town Hall for 15 years.

But even as late as the end of September 2020, with their positions clearly untenable, and Newman and Hall were still fighting to hold on to power, ordering their councillor colleagues to vote down an opposition Conservative motion of no confidence against them at an extraordinary meeting of the council.

Councillors Sean Fitzsimons (the chair of the scrutiny committee which failed to scrutinise Brick by Brick, the Fairfield Halls or the council’s parlously low financial reserves), Chris “Thirsty” Clark (recently promoted to be chair of planning) and Alisa Flemming (who had presided over the borough’s children’s services’ failed Ofsted inspection, requiring an extra £30million to be spent over the two years to 2020) were all wheeled out to make the sort of gushingly loyal speeches in defence of Newman and Hall that would have made Kim Jong Un blush.

In the end, the Tory motion lost because 40 out of Croydon’s 41 Labour councillors voted against it. The majority of those Labour councillors who voted to support Newman and Hall in September 2020 are now hoping to be re-elected as councillors in local elections in May 2022…

Yet they had all known most of the grim details about the financial disaster they were presiding over. Hall had shared the details with them in his note, sent “with fraternal regards”, on July 13.

Hall’s briefing note is reproduced in full here:

LABOUR GROUP BRIEFING NOTE ON FINANCES

Croydon Context – Pre covid-19
Croydon has long been underfunded by central government. The funding formulae used by government has never been accurate for Croydon. This has got massively worse over the last decade, as the formulae have been frozen, whilst we have seen a rapid growth in population, as well as a very rapid and substantial demographic change.

Croydon is a borough with the needs of a traditional inner London borough but the funding of an outer London borough.

To put this in context, if our core funding were at the London average, we would have received over £30million more and we [sic] were funded like neighbouring Lambeth we would have
over £80million more!

Local government has suffered from a decade of austerity. In Croydon’s case, that has seen a 75 per cent reduction in funding, equivalent to over £105million.

To make that worse, we have had additional responsibilities passed to us (like other authorities) and a huge increase in demand for services and the cost of those services, from national government decisions, such as the benefits cap, the freezing of working age benefits and the mismatch between actual council rents and the Local Housing Allowance (highest mismatch of any local authority).

Finally, there is the shortfall in [Unaccompanied Asylum-Sekking Children] funding, which has amounted to over £20million over the last three years and which, even with the recent Home Office announcement, is likely to be over £5million this year.

Covid-19 Local Government Impact
At the outset of the covid-19 virus, government ministers repeatedly urged councils to “spend whatever it takes” to help combat the virus and shield the most vulnerable.

And now, the end is near: Tony Newman tried to hang on to power

Every few days during the pandemic, local authorities have been given more and more  tasks by central government. And local authorities have had to step in, even before being officially asked, so as to protect residents.

Examples of just a few of the tasks are PPE for care homes, care homes training and oversight, support for those shielding (including culturally sensitive food as government does not recognise diversity), track and trace, enforcement of social distancing.

Government has paid two tranches of £1.6billion and announced a further tranche of £0.5billion with some possible additional  money for income loss but with no details nearly two weeks after the announcement.

When it talks about funding, it includes money that just transits through our accounts, like business grants, Council Tax hardship, infection control money.

Nationally, the funding gap is estimated at over £7billion. In London alone, the gap is £1.9billion.

And this in the context of local authorities being the only part of the public sector that is not allowed to have a deficit budget.

80 per cent of local authorities have said they are looking at making drastic cuts and may have to issue a S114 notice (official notice from the director of finance saying that the budget cannot be balanced for the year, effectively a bankruptcy notice).

Croydon’s Position and Actions
Based on our June return to [the Ministry of Housing, Communities and Local Government], in Croydon, our shortfall in money owed to the people of Croydon by government is £65million (London average £45million, Leeds £200million).

We have extra costs of £26million, lost income of £27million (Council Tax, business rates, parking etc) and unachieved savings of £32million. Covid has prevented us and will stop us implementing many of the initiatives contacted [sic] in the budget approved in March.

Against this £85million, the council has so far received just under £20million, hence the £65million gap. We have yet to know what we will get from the £500million and income help announced last week, but this is unlikely to be more than £5million.

Croydon has been lobbying hard, both directly with letters to ministers, officers discussing with MHCLG etc. and collectively through London Councils[and] LGA. We have also been briefing the three MPs urging them to do what they can on this.

There is no easy way to close a gap that is 8  per cent of our gross expenditure and 20 per cent of our net expenditure. In addition, we must remember our reserves are £10million for General Fund alone and £32million for general and earmarked reserves combined.

Steve Reed: Labour’s local government spokesman was briefed on borough’s financial crisis, according to Hall

In order to avoid S114 and its consequences and in order to keep control of our destiny and make sure our actions, whilst tough, are consistent with our ethos and our manifesto, we have started taking action for over two months [sic]. A financial review panel has been set up, with an independent chair and a number of external members, to help give a wider perspective and challenge in drawing up our plans.

The auditors attend those meetings so that they know what we are doing and can comment.

Immediate actions were taken, such as recruitment freeze including agency, stop discretionary spend, pause on all new projects.

A series of urgent workstreams are being developed around, including:

  • Staffing
  • Discretionary spend
  • Localities
  • Capital programme
  • Funding streams
  • New savings/income initiatives
  • Contracts
  • Placements
  • Discussions with government, notably MHCLG

Like other authorities, we are having to look at all our services, including making cuts to vital services and reducing staff numbers (we spend some £170million on staff annually).

A staff review has taken place and a formal 45-day consultation started on 6 July. This proposes a reduction in our establishment by just over 400, with staff at all levels in scope.

However, because much of the reduction will be from deleting vacant post [sic] and reducing agency staff, it is anticipated that less than [sic] 175 permanent staff would be affected. Indeed,
by looking at part-time working, early retirement and targeted voluntary redundancy, we are minimising compulsory redundancies.

To be clear, if central government had not reneged on its commitments, these tough choices would not be necessary. And, longer term, Croydon residents will continue to be penalised unless the fundamental unfair funding of this council is corrected.

Labour has not issued any statement on the “administrative suspension” from the party of the two former councillors for six months. Labour’s General Secretary is David Evans, who has previously worked very closely with Newman and Hall on local campaigns in Croydon,

Read more: Council forced to declare itself bankrupt
Read more: Officials to investigate possible wrong-doing at council
Read more: Conflicts of interest, incomplete contracts, unlawful payments


Exit mobile version