Croydon council effectively declares bankruptcy for second time

By Tara O’Connor

Croydon Council has had to issue a second Section 114 notice and it may not be the last time it is forced to do so.

By law, the council has to balance its budget. If it cannot, it must issue the notice, declaring effective bankruptcy.

Within 21 days of issuing the notice a full council meeting must be held to set out ways to save money.

If the budget cannot be balanced in this time, further notices have to be issued at 21 day intervals until the council’s finances are in order.

During this period, all spending needs to be approved by the director of finance Lisa Taylor and only essential spending is allowed.

This includes payroll and pension costs and spending to deliver statutory services at a minimum level.

The council is facing a £67 million overspend with just £7 million in reserves.

It is just the second council in 20 years to have to issue a Section 114 notice and will have to make some serious cuts over the next few years.

At an extraordinary council meeting on Tuesday to discuss the first notice, Ms Taylor told councillors why she had to issue a notice in the first place.

She said: “We did implement spending controls but we were not acting fast enough, we were not seeing our spend come down quickly enough to cover additional expenditure.

“By November 11, time was moving against us, there was a lack of pace, the urgency wasn’t there and the radical options were not coming forward. We were running out of time to deliver a balanced budget.

“The budget was not balanced and the plans were insufficient to demonstrate to me that we, as an organisation, could deliver the budget this financial year.”

The council is in the process of asking the Ministry of Housing, Communities and Local Government (MHCLG) for a multi-million pound loan known as a capitalisation budget.

It needs this money to be able to balance the budget and expects to hear back by early next year – until this is the case the council will remain in its current financial situation.

Ms Taylor added: “All the time we cannot balance our budget, which is the position we are in, we will need to operate under a Section 114 notice.

“A second 114 notice will run for another 21 days and just to manage expectations, if the budget cannot be balanced in this time we will need to have another extraordinary council meeting.

“I will have no option but to issue a third notice and if that continues we just carry on issuing those notices until we get to a point where we can balance the budget.”

Pictured: Lisa Taylor is the director of finance at Croydon Council, pictured at a meeting in February 2020. Credit: Croydon Council