With £1.6 billion in “toxic bad debt” Croydon Council has declared itself effectively bankrupt for the third time in two years.
The debt is costing the Council £47 million a year, and could potentially rise to over £60 million a year, according to the Medium-Term Financial Strategy published yesterday.
The Section 114 issued this week by the Council means the authority will “cease all non-essential expenditure and reduce operational and service delivery costs immediately”, according to the financial strategy report.
Mayor Jason Perry said in a statement: “The previous administration has left a legacy of unprecedented financial mismanagement, toxic bad debt and a lack of governance and transparency that shames Croydon and continues to have a long-lasting impact on the sustainability of our council.”
He said: “The toxic level of historic debt means that Croydon is trapped in a vicious cycle. Even with Government support, the coming years will be incredibly financially challenging for Croydon Council.”
“Ultimately, this will mean the council needs to do and spend less, with significant spending reductions.”
Between 2017-20, the council borrowed £535 million with no debt management plan in place, according to the strategy report.
Croydon Labour said in a statement: “It is a sad day for Croydon that the council appears to be going backwards. During a cost of living crisis, it is imperative that political leaders put their differences aside. Labour is under new leadership and is committed to working cross-party to clean up this mess.”
They added that they “accept that the previous administration made mistakes that contributed to our town’s financial challenges”, but also pointed out that “the Conservative Government’s own improvement panel acknowledged Labour’s ‘creditable’ progress in addressing the council’s financial problems since they came to light.”
They said: “This is a shared problem which requires a shared solution where both parties must work together in the interests of our residents. Unfortunately, the mayor seems more interested in scoring political points rather than working together to fix our town.”
Croydon resident Francesca Jex tweeted: “This really isn’t a shock to anyone living in Croydon. So many costs cut, promises made that weren’t delivered.”
She told Eastlondonlines: “[There have] been too many cuts, for instance, they shut down most mums and baby groups then restricted them to every other week, [they] cut costs on every corner they can. If you see the streets, people just dump rubbish because it’s not collected…it’s a shambles.”
The Council invested its borrowings into its building company, Brick by Brick, which did not produce the profits the council had based its budget on.
The council’s previous S114 notice in November 2020 was followed by a formal request for £150 million of extraordinary financial support.
Mayor Perry reached out to Secretary of State for Levelling Up, Housing and Communities Michael Gove earlier this month seeking further support, saying “the council remains deeply financially broken.”
The Cabinet will discuss its financial strategy at the meeting on November 30.
