Croydon has become only the second council in England in 20 years to issue a Section 114 notice, the equivalent of going bust.
Croydon Council’s finance director, Lisa Taylor, was forced to issue the notice because the authority can not meet its legal obligation to set a balanced budget.
The next 21 days the council can not spend any money without authorisation of the chief finance officer.
The Section 114 notice bans all new expenditure at the council with the exception of statutory services for protecting vulnerable people. It was already facing having to cut the adult services budget by £20million and children’s services by £2.5million.
The council, which had racked up £1.5billion in debt even before Covid has been in talks with the government over a bail out but despite ongoing discussions with the Ministry for Housing, Communities and Local Government, Croydon’s Director of Finance Lisa Taylor, decided that, with forecast spending continuing to ‘significantly exceed resources’ and plans to rectify this were ‘insufficient’.
This latest development comes just weeks after auditors accused the authority of years of financial mismanagement. The leader Cllr Tony Newman stood down just days after the cabinet member for finance Cllr Simon Hall resigned which followed the departure of Chief Executive Jo Negrini who left with a reported £440,000 pay off.
The council had been facing a growing budget gap of £65million but worse still £17.7million savings presented to the cabinet on September 21 had been incorrectly identified as being new.
Worryingly a review of the council’s housing company Brick by Brick, which the authority loaned £250million showed it had made no returns. If the council doesn’t continue to prop it up they could lose the whole lot.
Many of the so called ‘affordable homes’ it has built are finished but have sat empty for months because Brick by Brick failed to register itself as an approved provider of shared ownership homes and prospective purchasers were unable to get mortgage companies to lend to them.
Many departments have already faced huge job cuts. The parks department has seen more than 25 per cent of its labour force made redundant or let go.
Cllr Jason Cummings, Finance Spokesman for Croydon Conservatives said: “After failing to take the necessary action to turn the Council around after years of financial mismanagement by her group, today, Cllr Hamida Ali, Labour Leader of Croydon Council has seen her own Finance Officer declare them bankrupt by issuing a Section 114 notice.
“Her scathing report laid the blame firmly at the feet of the Labour Administration and it will be the local residents who suffer the most. I expect even more damning revelations around their decisions to lend hundreds of millions of pounds to their failed development company, Brick by Brick, and to invest in dodgy property deals.
“Labour were warned repeatedly over the last few years but ploughed on anyway, they must take full responsibility for the damage they have caused.”
After her appointment Cllr Hamida Ali, who some felt had been too close to the former leader Cllr Newman who she shares the Woodside ward with said: “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.”
A spokesperson for the Mayor of London, Sadiq Khan, told LBC tonight: “Croydon council recently elected a new Leader and senior team to tackle the council’s financial problems head on.
“The council have now issued a section 114 notice, in part because of the impact of Covid-19 on its finances, and is asking the government for additional financial support.
“The Mayor hopes a settlement can be achieved as quickly as possible that serves the best interests of Croydon residents.”