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The council issued a Section 114 notice on Wednesday, banning all new spending except for statutory and protective services.
It is the first time that a local authority has issued the notice from Northamptonshire County Council in 2018.
Last month, the Croydon Board underwent a government review after a damning report by auditors Grant Thornton found that there had been “collective corporate blindness to the seriousness of the financial situation and the urgency with which actions had to be taken. Actions”.
The report revealed that warnings about the council’s sorry financial condition dating back to 2017/2018 had been effectively ignored.
In her letter issuing the Section 114 notice, the council’s chief financial officer, 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 developer, Brick by Brick.
“Despite the Council implementing spending controls during the summer of 2020, non-essential costs have continued to be incurred,” Ms. Taylor wrote.
“As a result, a formal spending control panel has now been put in place, but as CFO I still don’t see an organization making the radical decisions necessary to stop all but essential spending.”
In their report, the auditors said that the council’s spending problems predated the 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 from Croydon South, accused the Labor council of “bankrupting the township.”
“Croydon Council just issued a Section 114 notice, that is, they are bankrupt,” he said. “They are the only London borough in this position.”
“Labor has bankrupted Croydon due to poor financial control, racking up £ 1.5 billion in debt and engaging in disastrous commercial property speculation.”
Former Croydon Council Leader Tony Newman and Labor finance cabinet member Simon Hall resigned a month before the auditors’ public interest report was released.
The couple had recently survived a censorship proposed by the conservative opposition.
Jo Negrini, the council’s executive director since 2016, announced her resignation in August.
Councilor Hamida Ali, the council’s new leader, said in a statement: “When I became Croydon’s leader 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.
“We know that we cannot do this alone and we want to work in partnership with everyone interested in Croydon’s success. That includes seeking financial support from the government, and today’s section 114 notice is part of the defense of that case.
“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 the local people that the council will continue to be here to support them.
“My priority is to rebuild a financially sustainable organization that 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 to balance the books.
A spokesman for the Ministry of Housing, Communities and Local Government said it was “correct that Croydon City Council makes the necessary decisions to manage its own finances.”
“We are aware of the serious concerns around the governance and risk management of the council, and the recent Public Interest Report was damning on the governance within the Croydon Council, which has been totally irresponsible with its spending and investments,” said. “That is why we have started a non-statutory rapid 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.”
