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Government to write off £540m of council’s debts, as Croydon becomes the Northern Rock of England’s local authorities

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Jason Perry, Croydon’s Tory Mayor, has leaked details of the bail-out deal he has been negotiating with government for the past six months, under which Tory Levelling Up minister Michael Gove and the Treasury are being asked to write off £540million-worth of the council’s £1.3billion debts.

If confirmed, the deal will make Croydon the first bankrupt borough ever to be allowed to welch on its debts in this manner. “It makes us the Northern Rock of the country’s local authorities,” one astonished Katharine Street source said this morning, referring to the bank which collapsed under the weight of its borrowings during the global financial crisis of 2007.

Even after all the scandals and shocks surrounding Croydon’s dysfunctional council over the past four years, the sheer scale of the debt write-off is likely to have massive repercussions not only for the borough, but for the way councils across the country are funded.

“When news of this gets out, there will be a queue down Marsham Street a mile long of borough finance directors and council leaders all with the begging bowls out, asking the Levelling Up department for similar terms,”  said another source this morning.

In the past year, Thurrock, Slough and Northumberland have joined Northants and Croydon as councils to issue Section 114 notices when they could no longer balance their budgets. Liverpool and Nottingham city councils are also under financial special measures supervised by the DLUHC.

Such is the funding crisis among councils, the Local Government Association has said that 90per cent of authorities in England are having to dip into their reserves to fund service costs this year.

Mr 15%: Mayor Jason Perry

The LGA estimates that English councils face a collective £2.4billion shortfall in budgets this year because of unexpectedly high inflation in staff pay, energy costs and contract prices.

Croydon’s position is worse than many because of the casino economics practised by the previous, Labour-run administration under council leader Tony Newman, dabbling in property speculation and other investments. But that was a position that Croydon, in common with other councils, including Thurrock, Nottingham and Spelthorne, felt forced into taking – indeed were encouraged by government and offered cheap loans to do so – after a decade of inequalities in its funding settlement.

Such unfair funding continues: this borough is getting £60million less in 2023-2024 than neighbouring Lambeth, an area with a smaller population and less social deprivation. So a write-off of £540million just about balances out 10 years of Croydon being unfairly short-changed by Tory governments.

A debt write-off has been on the cards since Perry’s council issued its “pre-emptive” S114 notice in November last year, predicting a busted budget in 2023-2024.

Jane West, the council’s finance director, mentioned a debt write-off in her S114 report. Tony McArdle, the rarely-seen chair of the government-appointed improvement and assurance panel (which hasn’t been doing much assuring these past 14 months) addressed the Town Hall Chamber in December, talking of Croydon’s “impossible levels of debt”.

Pre-emptive S114: Jane West

He said, “Just another capitalisation direction itself doesn’t do it.”

And Jason Cummings, Perry’s cabinet member for finance, referred to the debt write-off earlier this week, writing for this website. “We are asking government to write off a portion of the debt Croydon owes,” Cummings wrote. “This is a very difficult thing for them to do as it effectively takes Croydon’s debt and gives it to the rest of the country.”

When he says it is “very difficult”, Cummings may be utilising a bit of understatement. The reason that writing off councils’ debts is unprecedented is that there is currently no legal framework for doing it, and there is no definite timetable to introduce it for Croydon. So there are no guarantees that Gove will pull this off.

But the actual figures, the quantum of the debt write-off, that £540million, was not made public until this week, buried in 900 pages of budget reports from the council.

Perry made no reference to the half-billion write-off at the public meeting in Waddon last week, nor at the Town Hall meeting of the council that followed it. The £540million was not mentioned when he spent an hour briefing very concerned council staff on Wednesday.

The amount was not mentioned at last night’s council scrutiny committee meeting, either.

And there’s no mention of a £540million debt write-off in an unusually lengthy press release from the council’s propaganda bunker, issued yesterday. “Croydon is in negotiations with the government to secure a new solution that will enable it to protect everyday services for residents,” it said. “As part of this, Croydon has asked for government to write off all or some of the council’s debt, and requested a reduction in interest rates.”

See that: “all or some”. But no actual figure.

The amount did get a mention in a little-read local newspaper, possibly after one of the Mayor’s regular briefings with their underpaid and over-worked reporter.

The amount of the write-off has been determined, according to sources inside the Town Hall, to get Croydon to a level of indebtedness on a par with other, similar-sized councils. At a stroke, it will reduce Croydon’s annual debt repayments by £38million – almost double the amount of money which Perry’s 15per cent Council Tax hike will raise.

£540m political stitch-up: Michael Gove

The scale of what is being proposed also exposes the relative insignificance to the council’s overall financial standing of the £20million that the 15per cent Council Tax hike will raise, and brings into question the real motivation behind Perry requesting such a large increase and Gove acceding to it.

Given that the budget paperwork reveals that Perry is planning for a 0per cent Council Tax increase in April 2025, the year before he is due to seek re-election, the opportunism at the expense of the people of Croydon and political gamesmanship is obvious.

“The 15per cent is nothing more than a punishment,” one Katharine Street source said today, “a political beating for the people of Croydon.”

Another observer of London politics suggested that Mayor Perry has made himself unelectable by imposing such a large Council Tax increase on the very people who helped bring him to power less than a year ago, especially when it is revealed not to have been necessary.

The financial wheeling and dealing between Croydon Town Hall and Whitehall does not stop there.

Although Perry has repeatedly said that Croydon’s huge borrowings, accompanied by equally eye-watering debt interest repayments, are “unsustainable”, it is now revealed that the executive Mayor has also sought £224million in even more government loans. Perhaps these loans will be more “sustainable” than the other ones?

If granted, this would be almost double the “capitalisation direction” which Gove’s predecessors at the Department for Levelling Up, Communities and Housing handed to Croydon in 2021, soon after it first declared itself effectively bankrupt.

“The council is waiting for government to confirm full details of a bespoke package of support including capitalisation directions to help with debt repayments,” the council’s press release said.

People will suffer: Rowenna Davis

Rowenna Davis, the Waddon councillor who chaired last night’s scrutiny committee meeting on budget issues, told Inside Croydon, “In the short term, the budget adds up – on the massive assumption that the government allows us to borrow the extra funds we’ve asked for.

“We were reassured that the assumptions made and the savings proposed should be achievable. We cannot get out of this mess alone. We need the government to step in if we are going to get out of a dangerous debt trap.

“Until that time, the people of Croydon will continue to suffer for failures that were not their fault – and I don’t believe anyone thinks that’s fair.”

Read more: Perry to preside over record-breaking 15% Council Tax hike
Read more: Public’s furious reaction to Perry’s Premium Council Tax hike
Read more: Mayor Perry: ‘It’s going to get worse before it gets better’


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