Croydon Council becomes second council in two decades to declare bankruptcy

Croydon goes BUST: Labour-run local authority blames Covid as it is on brink of bankruptcy – as only one in FIVE councils in England expect to balance books without big cuts next year

• Croydon Council becomes second council in two decades to declare bankruptcy
• The borough has imposed emergency spending restrictions under a Section 114
• Officials blamed the coronavirus crisis coupled with ‘a decade of austerity’ 
• Last authority to use the order was Northamptonshire County Council in 2018

Croydon Council declared itself practically bankrupt yesterday and blamed its financial crisis on the havoc caused by coronavirus.

The Labour-run south London borough imposed emergency spending restrictions under a Section 114 notice – only the second authority in two decades to face such measures.

As well as the coronavirus crisis, local officials also pinned blame on ‘a decade of austerity’.

But the Government last night accused the council of being ‘dysfunctional’.

The authority announced yesterday it would fail to meet its legal obligation to balance its books.

It came as a survey revealed that only one in five councils in England are ‘confident’ of delivering a balanced budget unless drastic action on spending is taken.

The Labour-run south London borough council (pictured) imposed emergency spending restrictions under a Section 114 notice – only the second authority in two decades to face such measures

The Section 114 order means all council spending is blocked, apart from cash for safeguarding the vulnerable and other legal commitments.

Previous councils to face budgetary crises include Hackney, London, which issued a section 114 in 2000, and Liverpool, whose militant Labour faction deliberately passed an illegal budget in 1985.

Hamida Ali, Croydon Council’s leader, said yesterday: ‘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.’

Meanwhile, a survey of 36 local authorities by the County Councils Network said one in five (22 per cent) are ‘confident’ they can deliver a balanced budget next year without ‘dramatic’ reductions to services.

The survey showed even lower confidence for 2022/23, with just one of the 36 authorities confident it will be able to set a balanced budget.

The research also found just one council will be able to invest in adult social care over the next two years if additional funding was not provided.

Two-thirds of respondents said they would not be able to invest in supporting the economic recovery from the pandemic without extra funding while 65 per cent reported there would be greater demand on the NHS.

The Tory-dominated CCN predicts a £1.7 billion funding shortfall next year, a figure which is likely to be exacerbated by the second lockdown.

Opposition councillors accused Croydon Council of ‘playing Monopoly’ with the property market after it borrowed hundreds of millions for property investments, eroding its ability to weather the pandemic.

Days before the bankruptcy, Communities Secretary Robert Jenrick announced he was launching a rapid review of the council’s finances.

Auditors recently criticised the authority after it failed to act on three years of internal warnings and a £60million black hole in its budget.

Local officials blamed the coronavirus crisis coupled with ‘a decade of austerity’ but the Government last night accused the council of being ‘dysfunctional’ (stock photo)

Ms Ali, who became leader of Croydon Council three weeks ago, continued: ‘We know that we cannot do this alone and we want to work in partnership with everyone with a stake in Croydon’s success.

‘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.’

Speaking after auditors reviewed the council’s finances at the end of last month, Communities Secretary Robert Jenrick said: ‘The Public Interest Report published this week is damning about the dysfunctional governance within Croydon Council, who have been entirely irresponsible with their spending and investments.

He added: ‘There are serious questions that local leaders have to answer and we are stepping in to get the situation under control.’

He said the council had been allocated more than £23million in funding since the start of the pandemic.

Days before the bankruptcy, Communities Secretary Robert Jenrick announced he was launching a rapid review of the council’s finances

The Local Government Association, which represents councils, last night urged the Government to help authorities face spiralling demand on day-to-day services caused by Covid-19.

Croydon’s Conservative opposition leader Jason Perry said Labour councillors ‘have preferred to play Monopoly and borrow billions to buy hotels and shopping centres’.

He added: ‘They have doubled debt in six years to £1.5billion – that’s £15,000 per hour they have borrowed since taking office in 2014.’

In August, the council’s former chief executive Jo Negrini left her £220,000-a-year post after four years in the role.

Critics blamed her for lavish investments, which forced the council to axe 400 jobs and slash its budget by 15 per cent to stay afloat.

The council’s failure is expected to be a major embarrassment for London’s Labour Mayor Sadiq Khan, whose spokesman last night also blamed the pandemic ‘in part’ for its problems .