CROYDON IN CRISIS: There’s no mention of it on the agenda for tonight’s meeting of the full council. But official council reports show that the borough’s Housing Revenue Account has debts of £322.5m.
EXCLUSIVE by STEVEN DOWNES
£2bn of debt: the council’s debts are nearly 20% higher than previously suggested
It is a single line, the very last line, on the fifth page of a five-page presentation made by council officials this month.
The Housing Revenue Account, the ring-fenced council fund that pays for repairs and maintenance and new council homes, the official report states, “currently has borrowing of £322.5million”.
No further explanation is offered.
That’s another one-third of a billion pounds of debt at Croydon Council, in addition to the £1.6billion that the authority under Tony Newman and Alison Butler managed to accrue in their six years in charge from 2014.
The bombshell £322.5million figure comes at the end of a council report which was delivered earlier this month, attempting to explain “How is money being spent” in the HRA. The report was delivered alongside a second presentation that consider the real possibility that Croydon’s council tenants could face rent hikes of as much as 11per cent from next April.
The HRA report shows that the council’s housing fund operates on a balanced budget projected to be £91.24million of spending in 2023-2024, funded mostly by the £81million of income it receives from tenants’ rents.
Of the HRA’s spending, 13per cent – £12.26million – is used to service the hundreds of millions of pounds of loans that have been taken out. The HRA is spending almost as much on interest payments as it does on its controversially under-performing repairs contractor.
One-third of a billion bombshell: the single line of the report, with no explanation offered
The report also shows that the HRA’s reserves, at £27million, are less than one-tenth of the debt it has built up.
There is no apparent concern shown about the level of debt that has been built up by the HRA. “The option to borrow through the HRA can be considered as there is capacity within the current business plan to allow for that,” the report’s authors note, coolly.
This report comes while the council’s accountants and auditors have still to come to an agreement over the £73million of what was supposedly “ring-fenced” HRA funds that were used by the cash-strapped council for other purposes.
High-rise finance: Croydon’s HRA will spend as much on interest repayments next year as it does on repairs to property like the Regina Road flats
Katharine Street sources suggest that the HRA’s pile of debt is very likely a gargantuan example of robbing Peter to pay Paul, with the housing budget borrowing to buy some of Brick by Brick’s unsellable new-builds to serve as new council homes.
That money, in turn, eventually gets recycled into the bankrupt borough’s general account, as receipts from sales, slowly paying off the £200million-plus of loans that were made by the council to the failed housing developer between 2015 and 2020, and which caused its finances to collapse.
The report was delivered alongside another presentation in which the council has considered five models for council rents from next April. The first scenario is for a council rents increase of inflation plus 1per cent – which with inflation reaching a 40-year high, would hike tenants bills by 11per cent.
This comes on top of the 4per cent rent increase that tenants were hit with last April, as the council wrestles with cuts in central government funding while trying to pay back the £120million bail-out it received after going bust in November 2020.
Domesday scenario: a CPI+1% increase would see council tenants having to pay huge rent increased from April next year
As the report explains, the government is considering imposing a ceiling on any council rent increases in 2023 – as once again they try to pass the buck of financial responsibility down the line to local councils. It has been the practice previously for council rents to increase in line with inflation – a basic formula of Consumer Price Index + 1per cent, or “CPI+1%”, using the official inflation rate from the September of the previous year.
But with inflation racing out of control, there are serious concerns that alongside rising fuel bills and the cost of living crisis, rent increases of 11per cent will cause financial hardship to thousands of council tenants.
- A CPI+1% rent rise next April would see council tenants in a two-bedroom home have to pay £503.20 per month, an increase of £45.84.
- If the same rent increase was applied to those in a three-bed council home, they would pay £607.80 – an increase of £55.60 per month.
That’s the Domesday scenario being considered by the council, now under the leadership of Conservative Mayor Jason Perry.
The report states, “Government is consulting on impact of imposing a ceiling on any increase of 3per cent, 5per cent or 7per cent, and then reverting back to rent policy of CPI +1% from 2024/25.
“The five scenarios have been modelled to determine the impact on the HRA,” the report’s author states.
Who pays for the freeze?: cash-strapped Croydon would struggle to fund the lost income if the government imposes a council rents freeze
Croydon, like the majority of councils in the country, finds itself between a rock and a hard place. Under the council’s own modelling, only by increasing rents by 11per cent can they maintain a balanced HRA account – and that’s without doing anything much about the HRA’s £322million of debt.
The worst situation for the council would be if the government insisted on a council rents freeze next year. With the Housing Revenue Account expecting increases in its own costs of £5.3million, with a rent freeze, it would be in deficit by £8.6million in the next financial year.
“That level of HRA deficit, when there are £27million of reserves, is not so much of a problem if there’s just a one-year rent increase freeze,” a Katharine Street source said.
“But if the government does impose a rents freeze, then every council in the country should be lobbying for government to fund the freeze if centrally imposed.
“If a freeze or a cap is imposed on council rent increases, then there will be a saving to the Exchequer, as it won’t have to pay so much in increased Housing Benefit,” the source said. “Councils should argue that that saving should go to them, to help fund shortfalls in maintenance and repairs budgets.”
The council report is clear that whichever model of rent increases is applied, it will result in “difficult decisions” having to be made.
In office, but not in power: will Thick Lizzy Truss hand Croydon’s Tory Mayor Jason Perry another problem over council rents?
The report states, “The long-term impact of a one-year or two-year cap on the HRA results in difficult decisions on the ability to fund the outcomes from the stock conditions surveys [and] the work required to meet the zero carbon pledge.
“Future redevelopment plans of the ageing stock could be at risk”, and they add that Croydon’s HRA would not be able to carry out redevelopments to meet the standards expected in the aftermath of the Regina Road scandal.
There is a sense in the report that the costs of any rents increase might, eventually, be passed on to central government, who would pay the rents through Housing Benefit. According to the report, two-thirds of Croydon’s council tenants receive Housing Benefit. But even so, the report suggests that thousands of households would be placed at risk if asked to pay large increases in rent.
“Either the council coffers or the council’s tenants are at risk of a savaging,” one Katharine Street source told Inside Croydon after being shown the reports.
Making the figure balance: with more than £320m on its books, the HRA’s financial position is less rosy than was thought
“If the government decides to cap council rent increases until 2024-2025, that means another decision will be taken out of Mayor Perry’s hands.
“At the moment, we don’t even know if benefits will be uprated by CPI or by average earnings. If your rent goes up 11per cent and your housing benefit goes up by the equivalent amount, it won’t leave the tenant worse off. But if benefits are only uprated by average earnings rather than inflation, and we all know that workers’ earnings have not been keeping pace with inflation.
“Given the chaos at Westminster over Thick Lizzy’s Mini-Budget, it’s difficult to see how local government won’t be squeezed even more brutally, despite already being at breaking point.
“That will mean less money for discretionary funds to help those most in need.”
Read more: Brick by Brick has paid nothing to council
Read more: Council faces new storm over ‘missing’ £73m housing money
Read more: Conflicts of interest, incomplete contracts, unlawful payments
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Seriously?
Shouldn’t we be looking at recovering this lost money from the administration in charge?
Is this even possible?
Didn’t Westminster go after lady wassername for impropriety in council house sales?
Asking for a Green friend obvs…
I think you will find that the majority of the debt is as a result of the introduction of Self Financing back in April 2012 when the old Housing Subsidy ended. Self Financing affected every HRA in the country, and a quick bit of research shows that Croydon benefitted financially as it was previously previously in a negative subsidy position which meant it was having to pay money to central government out of the rent is was collecting from tenants.
The self-financing settlement abolished the subsidy system and redistributed debt between authorities on the basis of a Government assessment of their ability to service the debt. This had the effect of increasing the debt held by most authorities, but in return they no longer had to pay into the national pot.
In Croydon’s case, they had to borrow £223m.