Croydon Council ‘declares bankruptcy’ and bans spending with Section 114 notice

  • london
  • November 11, 2020
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The council issued a Section 114 notice on Wednesday, barring all new spending except on safeguarding and statutory services.

It is the first time a local authority has issued the notice since Northamptonshire County Council in 2018.

Last month Croydon Council was placed under a government review after a damning report by auditors Grant Thornton found there had been “collective corporate blindness to both the seriousness of the financial position and the urgency with which actions needed to be taken”.

The report revealed that warnings about the council’s parlous financial situation dating back to 2017/2018 had been effectively ignored.

In her letter issuing the Section 114 notice, the council’s director of finance Lisa Taylor warned of a £66 million budget black hole for the current financial year.  

This includes £36 million in “undeliverable” income from the council’s in-house property developer, Brick by Brick.

“Despite the Council having put in place spending controls over the summer 2020, non-essential cost have continued to be incurred,” Ms Taylor wrote. 

“As a result a formal spending control panel has now been implemented but as the CFO I am still not seeing an organisation that is taking the necessary radical decisions to stop all but essential expenditure.”

In their report, auditors said that the council’s spending woes pre-dated coronavirus, but that its “fragile financial position and weak underlying arrangements have been ruthlessly exposed by the impact of the Covid-19 pandemic.”

Chris Philp, the Conservative  MP for Croydon South, accused the Labour council of “bankrupting the borough”.

“Croydon Council has just issued a Section 114 notice – ie, they are bust,” he said. “They are the only London borough in this position.”

“Labour has bankrupt Croydon through poor financial control, running up £1.5 billion in debt and engaging in disastrous commercial property speculation.”

Former Croydon Council leader Tony Newman and Labour cabinet member for finance Simon Hall both stepped down month, before the release of the auditors’ Public Interest report.

The pair had recently survived a no-confidence proposed by the Conservative opposition.

Jo Negrini, the council’s chief executive since 2016, announced her resignation in August.

Councillor Hamida Ali, the new leader of the council, said in a statement: “When I became leader of Croydon three weeks ago I promised a new approach which tackles the problems the council is facing head-on.

“We need to be honest about the fact that, for a number of reasons, the council is on track to spend more than we have.

“The Covid-19 crisis and a decade of austerity have had a major impact on our finances but it’s clear the council has also made mistakes, and I am committed to fixing that.

“We know that we cannot do this alone and we want to work in partnership with everyone with a stake in Croydon’s success. That includes seeking financial support from the government and today’s section 114 notice is a part of making that case.

“While we continue to work hard to find savings, we must focus our spending on essential services and protecting our vulnerable residents.

“We’re not going to fix these problems overnight and there will be difficult decisions ahead but I want to reassure local people that the council will still be here to support you.

“My priority is rebuilding a financially sustainable organisation, which provides the value for money and high-quality services that residents deserve.”

The council is required to meet within 21 days of the Section 114 notice, when they must agree to curb non-essential spending and discuss measures for balancing the books. 

A spokesman for the Ministry of Housing, Communities and Local Government said it was “right Croydon Council takes the necessary decisions to manage its own finances”.

“We’re aware of serious concerns around the council’s governance and risk management and the recent Public Interest Report was damning about the governance within Croydon Council, which has been entirely irresponsible with their spending and investments,” he said. “That is why we have begun a rapid non-statutory review into the council to get the situation under control.

“The council has decided to issue a section 114 notice and we will consider the findings of the review which concludes later this month.”