CROYDON IN CRISIS: The council’s finances for 2023-2024 are worse than when Croydon first issued a Section 114 Notice, according to an official report released today. And a dispute over £73m of ‘missing’ housing funds could turn the financial black hole into a chasm. By STEVEN DOWNES
Storm clouds gathering: the council’s most senior finance official says she can see no way out of Croydon’s financial black hole
Croydon’s position for the next financial year is even worse than when the council first sounded the alarm bells two years ago, according to an official council paper released today by the Town Hall’s most senior finance official.
“The council faces an extremely serious financial situation which currently has no solution in sight,” Jane West, Croydon’s “corporate director resources” said this morning in issuing the bankrupt borough’s third Section 114 Notice in two years.
In November 2020, Croydon admitted it could not balance its budget for that financial year because of a covid-wrecked budget overspend of £63million, prompting its first S114.
Today, West fessed up to a probable overspend in 2023-2024 “in excess of £77million”, and that’s despite the 5per cent Council Tax hike coming next April.
She also warned that there remain financial land mines in past accounts from 2019-2020, 2020-2021 and the current financial year which could present the Town Hall administration, under Tory Mayor Jason Perry, with additional bills and liabilities.
The language used was councilspeak, but the meaning was clear. Croydon remains in an omnishambles: “The council does not currently have a fully deliverable robust action plan to avoid a negative general fund balance next financial year,” West warned.
Things could get worse: council finance director Jane West
In her report, West admitted that Croydon has been in negotiations with government paymasters at the Department for Levelling Up, Housing and Communities, but that any bail-out from Whitehall is unlikely to be approved until February.
And things could get worse, much worse, possibly with a fourth S114 Notice still to come.
The misuse of £73million of supposedly ring-fenced Housing Revenue Account cash on other, general account spending, remains a sore point with the external auditors from Grant Thornton.
“There is an unresolved issue in relation to the capital receipts from Croydon Affordable Homes/Croydon Affordable Tenures…”, West notes, in relation to the 2019-2020 accounts, from the time when Tony Newman and his deputy, Alison Butler, were running the Town Hall with Simon Hall as the cabinet’s finance chief.
“This issue was reported in the 7 March 2022 Budget report as having the potential to require a new Capitalisation Direction from government,” West reports.
“If this matter is resolved in the council’s favour, there will be the need for a £9million charge to reserves which can be accommodated within the council’s current reserves and provisions.
“However, if the external auditors require the adjustment of £70million, the council will be in deficit in 2022-2023. This would require a S114(3) Notice specifically for 2022-2023.”
West’s report begins by describing the council’s financial situation as “extremely serious… with significant estimated unfunded financial deficits forecast from 2023-2024 onwards”.
Housing issues: the misuse of £73m of HRA money was from around the time that Tony Newman and Alison Butler were still in charge at the council
She writes, “My conclusion as the S151 Officer is that Croydon currently has no prospects of returning to financial sustainability without significant and extraordinary financial support from government above and beyond the usual mechanism of Capitalisation Directions.
“Since I joined the council in March 2022, mindful of my statutory duty under Section 114, I have kept the need to issue a S114(3) notice under constant review. As a new S151 officer, I am required to make my own assessment of the council’s financial position.”
West refers to her predecessor in the council finance hot seat, Lisa Taylor, who issued Croydon’s first S114 Notice in November 2020. “It should be noted that when the original S114(3) Notices were issued in 2020 by the previous S151 officer, she would not have been aware of some of the current issues which are now being raised.”
West says that, at a pinch, the council will be able to balance its budget this financial year – which given that she was one of two senior officials to sign it off, should be a bit of a relief.
Mentioning interest payments on the council’s debts, the council’s capital programme and that £73million problem with the HRA, West says, “In my professional view, even if all these new charges to revenue are required, Croydon Council would technically be able to meet these costs within its current reserves and provisions.
Unaware: Lisa Taylor issued Croydon’s first S114
“Whether it would wish to do so is something that needs to be further explored as this would leave the council with no contingency for unforeseen challenges.” Which sounds like it would take all of the £27million of reserves built up since 2020 – mainly using the government’s bail-out cash – would all need to be spent.
West’s gloom-laden report suggests that there really is no end in sight for the council’s difficulties.
Work that has been done so far in preparing budgets for 2023-2024, she says, has discovered that, “The combination of the ongoing budget requirements of these legacy budget adjustments, fundamental structural issues within the council’s finances such as the toxic debt burden of negative equity from historic uncontrolled borrowing and the national and global issues the local government sector is currently facing has undermined the progress being made on the financial recovery….
“It is clear that in order to balance the council’s budget in 2023-2024, and later years, further assistance will be required beyond the Capitalisation Directions usually deployed by central government.”
And these measures might include, “Extraordinary support beyond Capitalisation Directions could include write-off of all or part of the council’s outstanding debt, permission to repay debt over a longer period and/or at a lower rate of interest, or permission to increase the Council Tax beyond the referendum cap,” meaning the 5per cent limited imposed by government.
“The council has begun a dialogue with the Department for Levelling Up, Housing and Communities (DLUHC) but it is unlikely that it will receive confirmation of potential solutions to the council’s unbalanced budget before February 2023, despite government officials working very closely with council officers in a very supportive manner.” Which is nice.
Read more: Council forced to issue 3rd bankruptcy notice in just two years
Read more: After nearly a year, Gove is sitting on two ‘improvement’ reports
Read more: ‘Uncertainty faced by all local authorities is unprecedented’
Read more: Tories accuse Labour of ‘shocking mistakes’ over budgets
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I have seen no reference as to whether our Borough, bankrupted by Newman, Butler and co, to the tune of £1.4billion, is required to pay interest on our debt. If it is, Croydon Labour will have afflicted the Borough for many years to come. Is there any formal investigation in hand. I sincerely hope so because I do not believe it is possible to lose so much money, even with gross incompetence, without some nefarious illegal activities by those in charge.
The borough was not bankrupted by its debt.
It was bankrupted by the over-budget spend – councils must, by law, deliver balanced budgets.
Councils across the country have been encouraged by government to borrow billions at historically low interest rates to speculate on commercial property.
Croydon’s borrowing, mainly from the Public Works Loans Board, would have been very long terms loans at fixed low rates. The suggestion, as made by Croydon Tories, that servicing these loans has in some way changed since Chris Philp and their mates at Westminster crashed the national economy is misleading, deliberately so.
Yep pretty much this. Councils have the situation where they have limited tax raising powers and have had central government cut so they’re running on empty. Croydon had thin reserves for years – under Tory and Labour administrations- which didn’t help. A toxic combination of ineptitude and austerity brought us here. It could be argued that the s114s should have come earlier instead of trying to muddle through.
I think the demise of the Audit Commission has a lot to play here as they’d have flagged the issues a lot sooner with a greater depth of understanding of how local government finance works, which is lacking in external auditors who just don’t have the same in depth knowledge or training that the Audit Commission provided.
Prepare for a Council tax hike – but even that may not be enough to cover this debt burden.
More to the point this is waste money – the Debt burden is and will become unsustainable in the short term without serious write off and or Government funding. Even loew interest and longer terms are not really acceptable for this Borough to regrow and regenerate.
Local Councils should never have been able to speculate with ”future revenue” money which in effect Newman and Fisher did and both left huge debts. That was there decisions and actions that did that. However it was the Framework and Regulations that were unfit for purpose and failed to prevent this happening.
So either Gove should be looking at the Local Government Act and long term funding or Kerswell needs to release the investigations to the Police and /or a public investigation.
Also at a recent presentation following questions raised by Tenants Representatives the Housing Revenue Account has a balanced budget of 91m( Tenant & Leaseholders money) but the previous administration’s have accumulated 324m in loans using the HRA( our money) as collateral. But are only paying off interest if 12.5 m a year. I am pursuing this issue as a lay advocate and I am a council tenant no politician or manager aske the people if they could use my money for these loans. It’s the same people who created and didn’t resolve slum housing. I challenge any Labour Politician to a public debate in housing and housing finance.
In line with the Government’s gloomy prognostications there is one thing one can be sure about Croydon: its all going to get worse before it gets even worse later. ‘Twas ever thus, at least for the past eight years, and will always be.
It would be interesting to finally have transparency regarding what exactly is the technical dispute with regard to the HRA. Being this issue would have been known during the first centrally administered bailout it seems a complete failure in governance to have resolved this issue. We have to assume it has something to do with that flightless albatross Brick by Brick and the depreciating asset value as the economy goes into a sleep until at least 2024 by current forecasts. All this imprecision regarding whether the council might be able to meet the arising deficit or might not be able to meet it arises because of this unresolved uncertainty?
I would disagree that the fundamental issue is not the stock of debt run up by both political parties because all the remedies being asked by the Council side regard either write off, additional capital, reducing debt charges or extending payment period to enable them to set a budget.
So it seems uncertainty along with the requirement of legacy adjustments to the context of the crashing economy of autumn 2022 bring central Government deeper into the mix of the deep malaise that is Croydon Council. Looking at the ever growing number of local authorities in deep financial trouble the issues are beginning to look systemic rather than sporadic one offs. It is difficult to think there are local authorities that are in a worse state than Croydon.
BUT…how much interest does the Council pay on Newman’s huge debts and is a formal investigation into the losses being made? There was talk of an audit but nothing has been heard or published to the best of my knowledge.
Sorry, Terry, but details of the various audits – Grant Thornton conduct a full audit every year – plus the various PwC reports, RIPIs and Kroll trawls have all be reported, extensively and repeatedly.
PWLB loans until this year were typically at less than 1 per cent interest.
Any new borrowing, conducted by the Mayor, will be significantly more expensive: https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D7A.2
My impression is that since Mrs T abolished the GLC, and during the decades of “Austerity” in particular, local government has suffered a death by a million cuts.
There is also the “bad master” /slave relationship.
The theory is that the more you starve but also beat the slave, the more work you get out of them.