Croydon council has declared effective bankruptcy for the third time in two years, saying it faces an “existential question” after collapsing under the weight of a “toxic debt burden” running to more than a billion pounds.
In the latest sign of the continuing financial storm raging through local government, the south London authority said it would be unable to balance its books after April, and signalled a fresh round of brutal cuts to services and job losses.
It has asked ministers to write off £1.3bn of debts, including £500m run up through a series of ill-fated commercial investments, arguing the sheer scale of Croydon’s crisis required an unprecedented financial bailout from the government.
A paper to the council’s cabinet says that, given the council’s deep-rooted financial and management problems, “it is unlikely the council will be able to become sustainable without significant financial support from central government”.
The council revealed it was spending £47m a year – a sixth of its annual budget – just on debt repayments, and that next year it faced having to cut a further £130m from spending – 43% of the budget – to meet its legal duty to balance the books.
Croydon’s Tory elected mayor, Jason Perry, warned “tough decisions” were needed to guarantee the council’s future. It needed to “do and spend less, with significant spending reductions”, he said.
Perry added: “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.”
The council, then under Labour control, first went bust in November 2020, after its finances spun out of control following a string of risky property investments, and overspending on social care. Subsequent reports identified that it suffered from chaotic leadership and mismanagement.
The council has since grimly retrenched, making £90m of cuts, slashing hundreds of jobs, and selling off £50m of assets. It has also been allowed by ministers to use £150m of capital funding to prop up day-to-day spending.
However, it was no longer tenable to keep making continuing cuts, it said. Under current projections it would be impossible to balance the budget in any of the next four years, and it was an “existential question” whether under current arrangements it could ever reach financial sustainability.
Although it is hoping to to raise council tax in the borough by the maximum allowed 5% next April, this would only raise an extra £11m a year, barely touching the sides of the problem. It has asked ministers for permission to raise council tax above the current limit but this is unlikely to be granted.
Croydon Tory leadership, in place since May, has been carrying out an “opening the books” exercise to ascertain the true scale of the council’s finances. This has uncovered a series of previously unidentified accounting errors and historic debts adding £48m to costs next year.
The council, in common with other authorities, is also struggling to cope with the soaring costs of wages and energy, and increased demand in high-cost service areas such as adult and children’s social care, and homelessness. Kent and Hampshire county councils warned last week they faced bankruptcy in the next 18 months.
Two years ago, Croydon was just the second council in two decades to go bust, after Northamptonshire in 2018. It was followed a few months later by Slough, with Thurrock council likely to follow suit after a borrowing a billion pounds to put into commercial investments, which subsequently went sour.
A Department for Levelling Up, Housing and Communities spokesperson said: “We have appointed an independent panel to address the significant governance and financial failings in Croydon and will continue to monitor progress to ensure the council delivers for its residents.”