The cost of servicing Croydon’s debt was made a million times worse because the then Labour-run council agreed to pay over the odds in interest on the £120million bail-out loan.
During a select committee hearing about Croydon’s S114 – bankruptcy – experience, Conservative MP Bob Blackman questioned whether it was ‘fair and reasonable’ that the Treasury was attaching a borrowing rate one per cent above its normal public loans.
This was in April 2021 before the Ukraine war, spiralling energy prices, inflation and the flip flop Conservative leadership when interest rates were under one per cent – now they are closer to five per cent.
At the select committee attended by Croydon’s chief executive Katherine Kerswell and the former Labour leader Hamida Ali (pictured), the council’s interim finance director Chris Buss, said: “Our hope is that we will be able to deal with a significant part of the amount we will have to borrow through the realisation of capital assets—we may not be able to do all of it, but we do hope to do that—and the repayment of loans that we have outstanding. Hopefully we will not have to borrow.”
However, 18 months later and following the issue of two further 114 notices that hope has turned to despair with council officers recommending its political leaders plead with the Treasury to remove at least the one per cent surcharge but ideally more.
In November 2022, the council’s precarious position was exposed in a paper to the Conservative cabinet now in charge of the council’s toxic finances.
On short term borrowing the council owes over £300 million at an average rate of 1.7%.
But the cost pressure caused by interest rates having risen significantly was not reflected in the 2023/24 budgets which spiralled the council in to its third bankruptcy crisis.
The Report in the Public Interest outlined in some detail the significant level of the council’s debt and its borrowing, and highlighted that in three years while Labour ran the council (2017/18 – 2019/20) it borrowed some £545m.
Despite this level of borrowing, there was no focused debt management plan put in place. Much of the debt was in the form of short-term borrowings which, as a result of having to be replaced in a period of much higher interest rates, are estimated to be increasing the annual repayment burden by a whooping £10m.
The report stated: “The impact of the Council’s borrowing, and the toxic debt burden the Council is having to service, has become critical to the sustainability of the Council’s revenue budget. “
It went on to say the council owes £1.6billion (including £300m Housing Revenue Account debt) and this costs the council at present £47m a year from the General Fund – which is 16% of the council’s net budget and could rise to over £60m a year (20%).
This is the depressing financial situation before the council can even spend any money on services for the people of Croydon.
A report to Monday’s Scrutiny Homes Sub Committee on the Housing Revenue Account and Housing General Fund budget also revealed a forecasted a £3.5m overspend in month seven – above the predicted budget – largely due to the ongoing pressure within the council’s bill for emergency housing (£2.6m overspend) and within the longer term leased temporary accommodation (£1.2m).
This it said reflects the rapidly worsening housing market within London including the increase of rents by private landlords, movement of private landlords out of the market, and tenants struggling with the cost of living.
The report also revealed data from the last three years shows that 59 per cent of homeless people placed in Croydon were made by other boroughs with the highest placements made by Wandsworth, Lambeth and Sutton.
The Chief Executive’s office has written to these boroughs in an attempt to reduce this added pressure on Croydon.