CROYDON IN CRISIS: In its latest report to Michael Gove, the Government’s improvement panel reveals a £38m hole in cash-strapped council budgets for the next four years – and repeats plea for unprecedented half-a-billion pounds loan write-off
Cash-strapped: even the government’s appointees reckon it will need a Northern Rock-style debt write-off to fix Croydon’s problems
Croydon’s cash-strapped council was still lending tens of millions of pounds to Brick by Brick, its failed house-building company, as recently as the last financial year, an official report to the Government has confirmed.
The Department for Levelling Up, Housing and Communities has today released the latest report from Croydon’s improvement and assurance panel, the local authority experts the Tory Government appointed in 2021 after the council’s financial collapse.
Back in 2020, with soaring debts and a £63million hole in its budget, Croydon issued the first of three Section 114 notices – effective admission that it was unable to meet its legal duty to deliver a balanced budget.
But according to the report from improvement panel chair Tony McArdle, Croydon will be unable to balance its budgets in 2024-2025 and for the three following years without Government bail-outs of at least £38million each year through until 2028.
McArdle’s report was submitted to Secretary of State Michael Gove last October, but there is no mention of the four years of further capitalisation directions contained in the budget reports recently submitted by Executive Mayor Jason Perry to the council’s scrutiny committee.
McArdle’s 12-page report is generally positive about the progress that has been made in Croydon in the previous year – this is the seventh improvement panel report since they were parachuted in, though the first since November 2022 – but he returns to the running sore that is Croydon’s £1.3billion debt, and the rising costs of interest to service that debt.
Gove’s choice: Tony McArdle heads up the council’s improvement panel. After almost three years, there’s not been much real improvement
Even last year’s extraordinary 15% Council Tax hike, requested by Mayor Perry and authorised by Gove, has done little to address that continuing problem. The cash-strapped council is having to sprint flat out just to stand still.
As Inside Croydon first reported, McArdle, Mayor Perry and other advisers have been pressing Gove and his Government for an unprecedented debt write-off of £540million (mostly owed to the Government’s Public Works Loan Board), in order to reduce the borough’s huge costs of servicing the loans.
In his latest report, McArdle writes, “A key aspect of the council’s continuing financial challenge arises as a consequence of the council having amassed £1.3billion in General Fund debt, some of it unsecured, while holding significantly less value than this in terms of assets available for disposal.
“The annual charges that are required to service this debt are placing substantial pressure on the council’s revenue requirements…
“… The council has calculated that it cannot sustain this level of debt and has requested that consideration be given to writing off £540million of debt (or providing annual support of £38million in order to sustain it) and discussions have been taking place with your Department in respect of this request.”
And according to McArdle, the talks over the debt write-off have continued well into last year. “These discussions are not yet concluded, and unless and until they are, the council will have to have a plan based on its debt remaining on its books and on being required to service it.”
Which all means that Croydon is still not managing to balance its budgets – without a subsidy of at least £38million per year just to pay off interest on loans.
One of the major factors that tipped Croydon Council into insolvency was the failure of its house-building company, Brick by Brick, to pay a single penny of interest on loans or profits back to the council after almost five years of developments.
Moves to wind-up the company have been underway for almost three years. But according to McArdle’s latest report, the failed business remains a drain on the council’s finances – just not as big a drain on Croydon’s tax-payers as it might have been when former council official, the hapless Colm Lacey, was in charge.
In his report, McArdle writes, “The outstanding loan balance from [Brick by Brick] at the end of March 2023 was £103.9million, the council having made further loan and interest payments repayments of £47.3million during the year.
“It is anticipated that loan and interest repayments of £50million will be achieved this year [2023-2024], resulting in a total debt write-off of £58million to £60million.
“It should be noted, however, that the council received circa £27.5million in interest payments over and above the actual cost of the borrowing that was used to fund the working capital of [Brick by Brick] activities over the duration of the developments, resulting in a net loss of circa £30million.”
And McArdle highlights how Lacey’s final, face-saving wheeze, trying to flog off Brick by Brick to another developer, Urban Splash, might have had expensive consequences for the council. Labour councillor Patricia Hay-Justice blew the whistle on that move, following reports by Inside Croydon, saving the council an estimated £60million.
“Whilst the council can ill-afford any losses associated with its commercial activities, had the proposed sale of [Brick by Brick] to a third party gone ahead in 2021, as opposed to completing the developments that were under construction, then the loss to the council would have been significantly greater.
Hapless: Colm Lacey wanted to sell BxB to another developer, in a deal which might have cost Croydon another £60m
“The debt write-off [for Brick by Brick] would have been in excess of £90million, which
together with the loss of interest income, delayed receipt of cash and associated Minimum Revenue Provision charges would have resulted in an outcome more than £50million worse than has been achieved.”
McArdle’s wide-ranging report takes in the borough’s housing problems and “demand management” for adult social services and children’s services, while painting a rosy picture of life in Fisher’s Folly under chief exec Katherine Kerswell and her hand-picked top team (what he describes as “the enhanced quality of senior and middle management”).
McArdle’s adding an extra panel member to his team – Eleanor Brazil, to oversee children’s services before the return visit of Ofsted – at an additional cost to Croydon Council Tax-payers of fees of at least £900 per day. Nice work if you can get it…
Brazil was last parachuted in to Croydon in 2017, to oversee the wreckage of the children’s services department following a seriously bad Ofsted report. The solution then was to throw £30million at the problem, and a massive recruitment drive for social workers, one of the overspends that helped sink the council’s finances, which Brazil is now tasked to resolve.
His report marks the beginning of a countdown, with an “exit strategy” which will see the improvement panel hand back the reins of power to Croydon’s all-powerful civic servants in 2025.
“The council continues to improve, and the pace of this improvement has moved up a
gear,” McArdle writes in his conclusion.
“There are risks. The council must set and achieve its budgets in difficult circumstances. It must come through inspections anticipated from Ofsted and Care Quality Commission creditably. The housing service in particular will take time to work through its backlog of investment needs….”.
Returns to Croydon: Eleanor Brazil will be paid £900 per day
All this “enhanced quality of senior and middle management” appears to have bypassed the council’s procurement activities, where contracts are not being renewed or re-tendered on time, or ludicrous deals involving non-existent bus shelters have been agreed.
McArdle says that procurement requires “significant improvement”.
He writes, “A ‘deep dive’ was carried out recently and this highlighted significant failings in the effectiveness of the Council’s monitoring of its contract pipeline and of ensuring that expiring contracts were re-procured in a timely and controlled manner.
“There were numerous examples of contracts that had expired but were still being utilised, contracts due to expire with insufficient time available to reprocure effectively and in accordance with the regulations and questions around data quality that all need to be addressed.
“These failings could leave the council exposed commercially as some suppliers may look to exploit the situation where short-term extensions are needed to maintain the provision of critical services.”
Read more: Perry to preside over record-breaking 15% Council Tax hike
Read more: Government to write off £540m of council’s debts, as Croydon becomes the Northern Rock of England’s local authorities
Read more: ‘An accountant could have foreseen this more than a year ago’
Read more: Lacey to be removed from board of mismanaged Brick by Brick
Read more: Mayor Perry: ‘It’s going to get worse before it gets better’
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ROTTEN BOROUGH AWARDS: In January 2024, Croydon was named among the country’s rottenest boroughs for a SEVENTH successive year in the annual round-up of civic cock-ups in Private Eye magazine
Nothing about this financial mess surprises me any more.
No. Wait.
£900 A DAY!!!!
Is that the same Michael Gove, that spent much of the 10/1/24 facing questions from Liam Byrne MP on the Teesworks limited enquiry🤔
H’mm………
Who ARE these non entities and where are they recruited from at such ridiculous salaries? More Post office chiefs in the making? Any grade 10 officer in the council would have more sense than these people. GAH!
Is this an exercise in spin? How can management be enhanced if still exposing the Council to more failure by being unable to manage basic contracts and procurement.
Is this how management is improved? By appointing some unelected Government insider who can just make announcements without any scrutiny of their actions. As with Kerswell this unelected regime has been in-situ for some considerable time and seem to think it’s inertia is some form of masterplan of dealing with the problems. It is clear they have no internal solution at the Council level to deal with anything and are treading water waiting for the only person who can provide solutions. That is Gove and if you haven’t noticed all he does is talk a good game without doing anything effective in tackling the problems his Government has created.
I hope Labour has some radical plan up their sleeve to deal with the huge local government mess they are going to inherit, but from the personnel and the policies they are propagating. I wouldn’t hold out too much hope.
The local council is now begging for the debt wrote off?
With so many other councils teetering on the brink of bankruptcy?
The government bail out bill for all councils could be 5 billion pounds?
Unaffordable?
And who is paying for this? Tax payers?