Croydon debt crisis: Council draws up action plan to cut costs

Rubbish bin waiting for pickup. Pic: Shane Rounce

An action plan to tackle Croydon Council’s £1.5bn debt has been drawn up as anger among local people continues to build.

Following the issue of a section 114 notice yesterday – which effectively declares the authority to be bankrupt – the action plan aims to tackle a range of governance and financial issues raised in the recent auditor’s report, which slammed the council for “significant overspends”.

According to the action plan, the council will rebuild the trust of local residents by “focusing on effective delivery of core services” and “learning from good practice as well as failures and from each other”.

Section 114 prevents new spending by the council for the next 21 days, including spending on ICT, supplies, services and equipment. Services deemed essential by the Local Government Association will continue, including:

● Children’s and adults’ social care
● Education
● Waste collection
● Public health services
● Planning and housing services
● Road maintenance
● Libraries

Why Croydon is in chaos…
While bankruptcy came suddenly, the financial crisis of the council dates back many years. Dreams of Croydon becoming a major housing developer have led to loans and risky property investments.

In an audit report published in October the council was heavily criticised for ignoring over three years of warnings on its financial situation. Massive overspends could be seen from 2017 and onwards, including a £545m loan for housing and commercial property investments, yet the budget gap has never been properly addressed.

The council must now balance its budget to manage the estimated overspend of £47 million next year, which could be achieved by measures such as selling council assets, mass redundancies or renegotiating contracts and reductions in services. It is only the second council in the past twenty years to issue a section 114 notice.

Government support

The Council is reported to be in talks with the Government about the financial support necessary to balance the budget and transform the council.

Sadiq Khan, Mayor of London, told LBC News: “I’m afraid the bad news is Croydon won’t be the last council that serves a section 114 notice. There are many other councils on the cusp of this.”

Khan explained the two reasons why Croydon is in chaos: “It’s a result of ten years of receiving less money from central government, additionally the last year’s worth of Covid issues as well.”

Lisa Taylor, Director of Finance, Investment and Risk at Croydon Council, who issued the Section 114 notice, said that it had been delayed due to ongoing discussions with the Ministry of Housing, Communities and Local Government (MHCLG). MHCLG have since reportedly described the council’s spending as “entirely irresponsible”.

Council leader Hamida Ali said in a statement: “I want to reassure local people that the council will still be here to support you.”

“First we must come together as a whole council, to address the serious criticisms contained within the auditors’ report and agree a way forward to ensure that this can never happen again. It will be an extremely important step in our improvement journey.” She added.

Concern and anger

The declaration of bankruptcy has caused concern and anger among residents. Ian Lavis, 55, a freelance content writer and English coach in Croydon, told ELL: “I’m not surprised the council is bankrupt. What surprises me is the level of incompetence that led to this… We’re only just beginning to find out the scale of mismanagement.”

He added: “I’m worried for what it means for residents, especially the most vulnerable and those struggling to make ends meet.”

“It’s unclear what services will be cut and what will remain and whether the government will help out or not…Until they are totally transparent, and those most at fault step down, it will be difficult to take the council seriously.”

Daniel Akinbola, 35, from Croydon said: “From what I can tell, the main reason is the council was too focused on turning Croydon into the West End. They had their eyes solely locked on Westfield. They mortgaged their future on the idea that it was going to come and completely regenerate Croydon, but I think most of us knew from the start it was never going to materialise.”

“I am scared about what the mandated spending freeze is going to mean for the people of Croydon, we already have a shockingly bad level of public services.”

Residents also expressed their concern on Twitter:

The action plan gives high priority to managing overspend on both children’s and adult’s social care, which currently stands at £39.2 million. There will likely be cuts to these services.

The plan also aims to implement a new approach to Special Educational Needs (SEN), working with schools to ensure that more SEN pupils are educated in mainstream provision.

It recommends that a new system of training for council staff be implemented, that includes “finance for non-financial managers, Business Case Development, understanding risk, project management and the council’s own governance processes.”

A meeting will be held next Thursday November 19 to discuss the report and the action plan that addresses 20 recommendations for change, of which eight are high priority.

By Isabelle Walker and Niamh Houston

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