Croydon council to ask for Government bailout to stave off bankruptcy threat

By Tara O’Connor, Local Democracy Reporter

If Croydon council cannot get a bailout from central government it could have to declare bankruptcy.

The latest figures show that the council is facing a £50.3 million overspend and therefore needs to make immediate savings.

With just £10.2 million in reserves the council has now decided to go to the Ministry of Housing Communities and Local Government (MHCLG) to ask for help.

To do this, the council has created a Croydon Renewal Plan, which sets out the plan to create a balanced budget over the next three years.

So far the council has identified £27.9m of urgent savings – this includes a 15 per cent reduction in staff numbers, expected to save £2m.

The council also hopes that increased parking charges from January 2021 will generate £1m more cash by the end of the financial year.

And free bulky waste collections will stop, to be replaced with a charge of £31 for up to three items and £51 for four to six items.

But despite this, the council still faces a £22.4m budget gap which it hopes will be plugged by formally asking the government for a ‘Capitalisation Direction’.

At a cabinet meeting on Monday, the council’s director of finance, Lisa Taylor, said that if the budget could not be balanced, she will have to issue a Section 114 notice – stopping any new expenditure and essentially declaring bankruptcy.

Presenting the Croydon Renewal Plan, she said: “If at any time I do not feel that these plans are developing at the right pace or are not deliverable, I will have no choice but to issue a section 114 notice

“This report is asking that cabinet approach MHCLG to borrow capital money for revenue spend. without this support we will be very unlikely to balance the budget this year.

“It is not free money and must be repaid. To be granted this, MHCLG and the treasury will want to see credible, sustainable delivery plans from this financial year and future years.

“Is the council bankrupt? No, not at the moment, but if the MHCLG plan is rejected we will not have enough money to cover our costs, we will have to revisit and set a further emergency budget and if not balanced again then yes, we will have to issue a Section 114 notice.”

Cabinet member for finance, Cllr Simon Hall, told the meeting that the council has been historically underfunded and not given enough support from the government throughout the coronavirus pandemic.

But opposition leader Cllr Jason Perry said: “It is a very sad position that we find ourselves in.

“The fact that our town is reduced to implementing an emergency budget in order to go to the government for a bailout is a sad day for our town.

“The problems in Croydon were evident well before March of this year, you’ve taken the borough to the edge of bankruptcy, yet you still blame the government and everybody except yourselves.

“In six years you’ve doubled debt to £1.5 billion and put nothing back to reserves. How can we trust you to deliver on this occasion?”

In normal circumstances, if Croydon council had forecasted a financial overspend this large it would have had to issue a Section 114 notice.

But changes in guidance means that this was avoided and the council was able to enter into ‘informal discussions’ with MHCLG.

Pictured top: Croydon Town Hall