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Ministers sent a task force to oversee the Croydon council after an audit report revealed that the Labor-led authority is on the brink of bankruptcy following a series of risky real estate investments and a lack of control of budgets. of social assistance.
Auditors harshly criticized the South London council for ignoring more than three years of internal warnings about its finances, accusing it of “collective corporate blindness” and fostering a culture of governance in which councilors did not vigorously question or scrutinize poor decisions of spending.
The council has a £ 60 million black hole in its budget and just £ 10 million of financial reserves, the auditors revealed, in a report that had strong echoes of deep-seated corporate failures in the conservative-run Northamptonshire county council. , which was effectively declared bankrupt. in 2018.
The auditors, Grant Thornton, said Covid-19 had “ruthlessly exposed” the council’s underlying fragile financial situation. “While the … pandemic has created significant financial pressures on local government, the depth of the problems facing Croydon existed before the pandemic.”
The other findings of the report include:
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Croydon borrowed £ 545 million over the past three years to invest in residential and commercial properties. This included a £ 200 million loan to its own Brick By Brick home development arm, which has yet to repay a dividend. The council has equity loans of nearly £ 2bn.
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He invested £ 30 million in local Croydon Park hotel in 2018-19. This went into administration in June. He also spent £ 46 million on a shopping center. The council’s strategy of “investing[ing] its exit from the financial challenge “was” inherently flawed, “as councilors did not adequately understand the retail and leisure markets, the auditors said.
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It allowed an overspend of £ 39 million on social care for adults and children to spiral out of control after 2017 when an Ofsted inspection called its services for children ‘inadequate’, and subsequently used accounting gimmicks to mask its lack of control of costs in these departments.
The audit report revealed that Croydon’s chief finance official drafted a formal section 114 letter to the heads of the council in September stating that the council was indeed bankrupt, but this was not released after discussions with the former leader and other senior managers.
There has been a cleanup of Croydon top management in recent weeks with former board leader Tony Newman, deputy director Alison Butler and former CEO Jo Negrini leaving their posts. The new leader, Hamida Ali, has promised “decisive action” to control the council’s finances.
On Thursday, local government secretary Robert Jenrick confirmed that Croydon had approached the government for special financial help and announced that a quick review of the council’s governance, culture and risk management would take place.
He said: “The public interest report released this week is damning on the dysfunctional governance within the Croydon council, who have been completely irresponsible with their spending and investments. There are serious questions [for] local leaders respond, and we are stepping in to control the situation. “
Although it does not come to a full Northamptonshire-style legal intervention in the day-to-day running of Croydon affairs for now, the review will closely examine the council’s financial plans and business investment strategies to see if more formal involvement in is required. the future. .
Ali said: “While a decade of austerity and the Covid-19 crisis have had a major impact on our finances, they do not excuse the problems that this report has exposed. The council fully accepts the findings and recommendations of this report and the new council leadership will take swift and decisive action to stabilize the council’s finances and governance. ”
Croydon’s dismal financial state, while predating the pandemic, has highlighted the increasingly fragile state of council finances across the UK. Manchester City Council warned on Thursday that it faced “nasty cuts” in services if the government did not step in with additional funds to address an anticipated budget deficit of £ 105 million in 2021-22.
Manchester leader Sir Richard Leese said: “At the beginning of this crisis, the clear message from the government to local authorities was ‘spend what you need’, but they have since changed their minds. We need you to honor that original commitment. Not doing so would mean that we will be forced to make totally unpleasant cuts. “
