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.
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