Croydon Council ‘declares bankruptcy’ as it freezes spending

Croydon council has issued a notice – effectively the equivalent of bankruptcy – after saying it was unable to fill a £66m black hole in its budget in the wake of a financial crisis brought on by risky property investments and lax financial controls.

The council, which on Wednesday formally issued the section 114 notice confirming it was unable to meet its legal duty to balance its books this year, said “severe ongoing financial challenges” had forced it to take the drastic step.

All non-essential spending at the council has been frozen for 21 days as it prepares an emergency cuts programme to stabilise its rocky finances.

The council’s new leader, Hamida Ali, warned that “difficult decisions” lay ahead.

The issuing of the section 114 notice comes a week after ministers sent in a task force to oversee Croydon’s day-to-day management. The council said on Wednesday it was in discussions with Whitehall officials about the prospect of government financial support.

Croydon is one of just two councils that have been forced to issue section 114 notices over the past 20 years, following in the footsteps of the Conservative-controlled Northamptonshire county council in February 2018.

There is increasing concern that a decade of cuts to local authority funding, coupled with huge income losses caused by Covid-19 and diminishing financial reserves, could lead to several more councils issuing section 114 notices.

“We’re aware of serious concerns around the council’s governance and risk management and the recent public interest report was damning about the governance within Croydon council, which have been entirely irresponsible with their spending and investments. That is why we have begun a rapid non-statutory review into the council to get the situation under control.

“The council has decided to issue a section 114 notice and we will consider the findings of the review which concludes later this month.”

In a statement, Ali said: “When I became leader of Croydon three weeks ago I promised a new approach which tackles the problems the council is facing head-on. We need to be honest about the fact that, for a number of reasons, the council is on track to spend more than we have.

“The Covid-19 crisis and a decade of austerity have had a major impact on our finances but it’s clear the council has also made mistakes, and I am committed to fixing that.

“While we continue to work hard to find savings we must focus our spending on essential services and protecting our vulnerable residents. We’re not going to fix these problems overnight and there will be difficult decisions ahead, but I want to reassure local people that the council will still be here to support you.”