As a besieged Croydon council declared effective bankruptcy On Wednesday afternoon, its acting chief executive, Katharine Kerswell, sent a disturbing wake-up note to staff: “Too many of us are still functioning as usual,” she warned, “and don’t. facing our reality that we are in fact in a financial crisis.
The methodical drop-by-drop erosion of municipal budgets in recent years had perhaps hardened some of the magnitude of the challenge facing the South today. London arrondissement. Bankruptcy came suddenly, but the roots of the council’s woes stretch back years, driven by intoxicating dreams of making Croydon a major real estate developer, and hampered by a culture of lax financial controls and poor governance.
The new reality is that, in the midst of a pandemic, Labor-led Croydon has only become the second council in 20 years to issue a Section 114 opinion – meaning it is in fact insolvent. He has a £ 67million hole in his budget and a planned overrun next year of £ 47million. He only has £ 10million in reserves and holds nearly £ 2bn in equity loans, many of which are tied to risky real estate investments.
He now faces the ignominy of having to implement his own drastic mini-austerity program to meet his legal obligation to balance the books. “We will have to make decisions that will be very difficult, very difficult, and will have implications [for staff and services], without a doubt, ”the new head of the council, Cllr Hamida Ali, told the Guardian.
Despite the shock of the Section 114 notice, observers say Croydon had been on the verge of bankruptcy for months. In August his former managing director Jo Negrini left, allegedly with severance pay of £ 440,000. A few weeks later, the council’s chief financial officer wrote a section 114 notice, but it was never published. The head of the council, Cllr Tony Newman, resigned in mid-October after six years in office.
At the end of October, a devastating report by the council’s own auditors, Grant Thornton, trashed the council for “collective corporate blindness.” Financial controls were lax, despite a series of formal audit warnings, and a corporate culture of not questioning or reviewing financial decisions made by management.
The auditor’s report indicated that Croydon’s finances had been deteriorating for years. The huge costs of overhauling the council’s failing children’s services after a critical Ofsted report in 2017 had resulted in huge rolling budget overruns that were never properly addressed – and indeed their impact had been. masked by accounting tricks.
At the same time, Croydon has borrowed £ 545million over the past three years to buy a shopping center and hotel and start a property development business. Corporate oversight over these deals was weak, auditors said, and despite the huge sums invested, the board has yet to receive significant feedback. Loan servicing would cost millions a year.
The last straw seems to have been the coronavirus pandemic. As costs skyrocketed, Croydon’s revenue from municipal taxes and commercial rates plummeted. The government compensation plans did not cover the expenses. “The council’s fragile financial situation and the weakness of the underlying arrangements have been ruthlessly exposed by the impact of the Covid-19 pandemic,” noted Grant Thornton.
The council’s public services – already battered by a decade of austerity funding cuts – face yet another hammer as it tries to get its finances back on track. All non-essential spending has been frozen, more job losses are expected and rumors are circulating that staff are being put on four days a week. The future of so-called secondary services, from libraries to parks, seems fragile.
Ali and her cabinet will present a new budget to the board in three weeks which she hopes will stabilize finances over the next two years. She won’t say which services will be cut or reduced, but she does not seek to downplay the severity of what is required. “We are looking at everything,” Ali said.
Steven Downes, the editor of The Independent Inside Croydon The website, which reported the council’s financial woes in great detail, said the savings would likely be painful. “Two-thirds of the libraries in Croydon have been closed since March because of Covid. They may never reopen. They’ve gotten rid of most of the “good-for-you” services in recent years. The parks service is already essentially two men and a dog.
The council was forced to ask the government for a financial bailout to complete it over the next two years. Secretary of State for Housing, Communities and Local Government Robert Jenrick – who accused Croydon’s ruling Labor group of being ‘dysfunctional’ – has already sent a task force of experts to oversee day-to-day operations advice.
Chris Philp, Tory MP for Croydon South, told The Guardian he believed the audit report showed the council’s downfall was due to his particularly reckless leadership. “This is not a government funding problem, it is a problem fabricated by the Labor clique that runs the council.”
Steve Reed, Labor MP for Croydon North and fictitious Secretary of State for Communities and Local Government, disagreed: the Covid-19 pandemic ”.
The new management of the board has no illusions about its future. Ali admitted that while austerity and Covid-19 have had a huge impact, they do not excuse the shortcomings highlighted by listeners. Mistakes have been made, she said, and “swift and decisive action” will follow. For Croydon, she warned, there are “tough decisions to be made.”