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The worker-run Croydon council in south London issued a notice, effectively the equivalent of bankruptcy, after saying it was unable to fill a £ 66m black hole in its budget in the wake of a financial crisis. caused by risky real estate investments lax financial controls.
The council, which on Wednesday formally issued the section 114 notice confirming it was unable to fulfill its legal duty to balance its books this year, said “ongoing severe financial challenges” had forced it to take a drastic step.
All nonessential spending on the council has been frozen for 21 days as it prepares a program of emergency cuts to stabilize its fragile finances.
The council’s new leader, Hamida Ali, warned of “tough decisions” ahead.
The issuance of the section 114 notice comes a week after ministers sent a task force to oversee the day-to-day running of Croydon. The council said Wednesday it was in talks with Whitehall officials about the prospect of financial support from the government.
Croydon is one of two councils that have been forced to issue section 114 notices in the past 20 years, following in the footsteps of the Conservative-controlled Northamptonshire County Council in February 2018.
There is growing concern that a decade of funding cuts to local authorities, coupled with huge revenue losses caused by Covid-19 and dwindling financial reserves, could lead several more councils to issue section notices. 114.
Croydon’s own auditors harshly criticized the council last month in a report that said former leaders of the local authority had ignored more than three years of internal warnings about their finances. The auditors accused the council of “collective corporate blindness” and fostering a culture of governance in which poor spending decisions were not vigorously challenged.
A spokesman for the Ministry of Housing, Communities and Local Government, said: “City councils are responsible for balancing their budgets and it is correct that Croydon city council makes the necessary decisions to manage its own finances.
“We are aware of the serious concerns around board governance and risk management and the recent public interest report was damning on the governance within Croydon’s board, which has been completely irresponsible with its spending and investments. That is why we have started a non-statutory quick review in 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 that concludes later this month.”
In a statement, Ali said: “When I became the leader of Croydon three weeks ago, I promised a new approach that would address the issues facing the council head-on. We need to be honest about the fact that, for various reasons, the council is on its way to spending more than we have.
“The Covid-19 crisis and a decade of austerity have had a major impact on our finances, but it is clear that the council has also made mistakes, and I am committed to fixing them.
“As we continue to work hard to find savings, we must focus our spending on essential services and protect our vulnerable residents. We are not going to solve these problems overnight and there will be difficult decisions in the future, but I want to assure local people that the council will continue to be here to support them. “
