As if being subject to two Reports In The Public Interest from clearly unimpressed accountants is not bad enough, Croydon Council’s casino-like borrowing has also been investigated by local authority auditors in Scotland.
Midlothian Council called in Ernst and Young, their external auditors, after it was disclosed that the Scottish local authority had loaned £13million to Croydon in 2020.
Alarm bells were sounded by Midlothian’s audit committee when they were told that they made the loan to Croydon at the height of the first covid lockdown, in April 2020, but then discovered that the south London council was in deep financial turmoil.
Local authorities across the country have been encouraged by government to borrow billions of pounds at very low rates of interest from its Public Works Loan Board. Most of Croydon’s £1.5billion debt has come from that source.
But there has also developed a secondary borrowing market between councils. These are often shorter-term loans where higher interest rates have been charged. There is more than £15billion of inter-authority lending across the UK.
It has been suggested that at the depths of its financial collapse, Croydon was taking out short-term loans to meet payments on other borrowing.
In 2020-2021, Croydon was expecting to receive income from Brick by Brick, its in-house house-builders, of around £32million in profits and loan repayments and interest. The council had lent around £200million to Brick by Brick, much of the money coming from the PWLB. But by the end of the 2020 financial year, Brick by Brick had failed to repay a penny.
In April 2020, when Jo Negrini was still council chief exec, Croydon agreed to pay Midlothian 1.85per cent in interest payments per year for the two-and-a-half year loan period – almost twice the rate of interest on PWLB loans. The Scottish council stood to make a £600,000 return on its loan.
Notorious: Jo Negrini’s £440,000 pay-off was the talk of Scotland
Ernst and Young were called in to carry out a “wide-scope review” of Midlothian’s treasury management policy following questions about its investment in Croydon.
Midlothian, to the south of Edinburgh, is a Labour-run council. When the Croydon matter was raised by the minority Tory group on Midlothian Council, Negrini’s £440,000 pay-off when she left her Croydon job in September 2020 even got a mention.
“The public will be furious that this large deposit was given to a council who had racked up massive debts at a time when our own communities, businesses and residents need every penny of support,” Peter Smaill, the Scottish Conservative Midlothian group leader, said.
“We have seen in the past instances where other councils have been caught out playing ratepayer roulette with these sorts of deposits. Further answers are urgently needed over what Midlothian either knew or didn’t know, but should have known, about the already dire situation of Croydon Council.
“It is clearly in the public interest for there to be full disclosure on this issue.”
The Scottish council created a FAQs page on its website to reassure its residents about depositing money with Croydon Council.
Midlothian councillors were given assurances by their council officials that their “investment” in Croydon was secured on “its revenue stream”.
In early 2021, the government granted Croydon a £120million bail-out package, the biggest in British local authority history, which is being used to balance the books and secure repayment obligations.
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So much for canny Scots. Who thought lending Croydon money was a good idea?!
They will make £600,000 in two years from doing… nothing.
Seems canny enough to us. Money goes to money.