CROYDON IN CRISIS: The bad example set by our south London borough appears to have nudged Whitehall into looking at the failed system of local government finance. By our Town Hall reporter, KEN LEE
Michael Gove has announced a review of the Council Tax system, while admitting that his Levelling Up, Housing and Communities department’s system of checking on financially troubled local authorities such as cash-strapped Croydon is “imperfect”.
The Tory minister was addressing a Commons select committee on Monday.
That was a day before Croydon formally announced that it would not be able to balance its books in 2023-2024 – despite Conservative Mayor Jason Perry having yet to complete his budget-setting process for the next financial year.
Croydon is among a clutch of local authorities who have had to resort to issuing a Section 114 Notice in the past few months, as their out-goings are not matched by their income from Council Tax and other revenues.
This week’s announcement from Croydon marked its third S114 in just two years. When Croydon first issued a S114 Notice in November 2020, it was only the second council to do so this century.
As Inside Croydon was first to report on Tuesday, the council’s finance director has asked DLUHC to consider writing off all the bankrupt borough’s £1.6billion of debt, or allowing the council to set Council Tax next year above the 5per cent nationally imposed cap without the need for a local referendum.
Gove told the Commons levelling up, housing and communities select committee that he and the Chancellor, Jeremy Hunt, have asked local government finance minister Lee Rowley to review the operation of the Council Tax system.
Council Tax is the “second most unpopular tax in the country”, Gove told the committee’s MPs.
“It’s a challenge,” Gove said, “and one that we want to look at. Lee has been looking at this at both the Chancellor’s and my request.” Rowley is expected to report back to the committee on his review in the new year.
Council Tax is a system of tax on domestic property which operates in England, Wales and Scotland and which was introduced in 1993 to replace the short-lived and much-loathed Poll Tax, which the Thatcher government tried to impose to replace domestic rates.
Croydon is notorious for having one of the highest levels of Council Tax compared with other London boroughs. There has been no revaluation of the Council Tax bands since they were introduced almost 30 years ago.
Gove told the committee that no one in government “would want council taxpayers to pay any more than is necessary for the provision of services”.
But with authorities across the country in financial meltdown after 12 years of Tory governments outsourcing austerity to councils, the Council Tax review appears to be part of a wider reform of local government finance system that is getting underway.
Gove wants it to be “simpler and clearer”, with “fewer streams, a greater degree of local discretion [and] fewer pots for which people bid”.
The Local Government Chronicle reported this week that, “When asked whether the Department for Levelling Up, Housing and Communities has a system of signposting financially troubled local authorities, Mr Gove said: ‘Yes, but it’s imperfect’.”
Following Croydon’s financial collapse in 2020, Gove’s predecessor as minister, Robert Jenrick, sent in an improvement panel to oversee the running of the borough’s finances. The improvement panel was supposed to deliver quarterly progress reports to Whitehall, but no such reports on Croydon have been published since December last year, and Gove has failed to release the last two panel reports, one dating back to March 2022.
Speaking at the select committee this week, Gove said, “The way in which local government is audited overall is imperfect.
“We do need to have improved central scrutiny, not control, but scrutiny of local government budgets.” This appears to be a delayed reaction to the financial chaos encountered in Northamptonshire, Thurrock and Nottingham City councils, as well as Croydon. The Local Government Association recently suggested that as many as 60 local authorities in England and Wales may be on the brink of bankruptcy.
Gove pointed to the new Office for Local Government which is set to have a role in providing data as to where “local government is working well, but that could also flash up problems at an earlier stage” and ensure the government can “make meaningful judgements” on local authority performance.
Gove and his department is expected to deliver a verdict by February on how Croydon is to be run under a Conservative Mayor, either with a further “capitalisation direction”, or bail-out, in addition to the £145million already doled out, or whether to send in outside commissioners to take over the running of the bankrupt borough, as has happened in Northants, Thurrock and Medway.
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: ‘There is no solution in sight’ warns council’s finance chief
Read more: Tory blame game over bankruptcy points finger at Westminster
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