Thread by @Gareth_Davies09

Exclusive: Croydon Council issues Section 114 notice - effectively the equivalent of bankruptcy - with immediate effect

It's the first local authority to do so since Northamptonshire County Council in 2018

A notice informing councillors was sent out minutes ago by Lisa Taylor, the council's director of finance, investment and risk - and the authority's Section 151 officer

The immediate cause is the financial impact of Covid-19 but, as I explained in the thread below a few weeks ago, the council's financial problems are far more ingrained than that

https://twitter.com/Gareth_Davies09/status/1320688380053696512?s=20

A Section 114 notice means the council's key finance officer believes the authority cannot meet its legal obligation to set a balanced budget. It has serious implications.

For next 21 days the council must not spend any money without authorisation of the chief finance officer

The council obviously has many vital statutory obligations it must meet - not least of which is to vulnerable children and adults. This urgent spending will continue (but still require sign off)

This decision is a major embarrassment for three senior Labour politicians:

@SadiqKhan will come under fire for failure of a Labour council in London
@SteveReedMP, the shadow sec responsible for councils, is Croydon North MP
@LabourSJ, also on shadow cab, is Croydon Central MP

All three will inevitably face questions about what they knew about the severity of Croydon's financial problems

At the start of the pandemic, CIPFA (which oversees rules around council finances) and MHCLG agreed to change Section 114 guidance to allow councils to seek financial assistance from government in attempt to avoid such drastic action.

So Croydon effectively asked for a bailout

However, despite ongoing talks between the council and @mhclg, Director of finance Lisa Taylor decided that, with forecast spending continuing to "significantly exceed resources" and plans to rectify this were "insufficient", she had no choice but to issue the 114 notice

Taylor says part of the reason why this suddenly changed is a letter the council received from @CIPFA chief exec @RobWhiteman, who pointed out the new guidance related to "direct costs" connected to Covid-19.

Croydon issues were far from limited to the pandemic

Not only was the council's £65m budget gap growing, but it turns out that £17.7m of the savings presented to cabinet on September 21 had been incorrectly identified as new savings - so the plans would not plug the deficit by anywhere near as much as hoped

Perhaps even more worryingly, a review of the council's housing company Brick by Brick, which the authority had loaned huge sums of money to yet received nothing in return, "identified that there is a greater risk than previously
anticipated"

Despite all the warning signs, and the damning report by Grant Thornton, Taylor told councillors: "I am still not seeing an organisation that is taking the necessary radical decisions to stop all but essential expenditure"

Taylor: "I am not seeing the necessary level of pace, urgency or radical options to be presented to members to take decisions upon to give me confidence that the Council can
make the level of savings required to deliver a balance budget in year"

There must now be a meeting of the full council to consider the Section 114 notice within the next 21 days.

The council is already due to discuss the Grant Thornton report next week

To reiterate:

Croydon Council has banned all but essential spending in order to urgently cut its costs.

A council serving around 400,000 people has effectively declared bankruptcy.

A seriously angry Labour councillor tells me

Obviously a lot of things have happened to get to this point. Covid obviously a factor, but certainly not the only one. Clear councillors/officers failed to act on warning signs since 2017.

Then there's the wider issue about 10 years of austerity pushing councils to the brink

A reminder that:
- Council leader @CllrTony stepped down last month (he is still a councillor)
- Finance lead @CllrSimonHall also stepped down in Oct (he is still a councillor)
- Chief executive Jo Negrini left in August

Cllr @HamidaAli76 has since become council leader. But sources within the local party are concerned she is too close to Newman to undertake the full inquiry they believe is needed, and has yet to explain what she did to scrutinise decisions as a cabinet member

Following up on that Brick by Brick point earlier. It looks like the total risk to the council *this year* from the botched business arrangement could be as much as £17 million!

Utterly scandalous

The full scale of the problem is this - six months into the financial year the council, despite all its cost-cutting plans, still has to find £37 million from somewhere in order to balance its books

Should point out that @InsideCroydon has done some relentless reporting on all the issues building up to this financial crisis. Well worth a read google.co.uk/amp/s/insidecr…

Jason Perry, leader of the Conservative group in Croydon, tells me former council leader Tony Newman and finance lead Simon Hall to resign as councillors.

"Billions of pounds of taxpayers' money is at stake - to just step down and go to the bank benches really isn't good enough"

Croydon Council has issued a statement announcing the 114 notice "due to the severe ongoing financial challenges"

Council leader Hamida Ali: "There will be difficult decisions ahead but I want to reassure local people that the council will still be here to support you"

I understand the Labour cllrs are about to hold an emergency meeting. Most learned about the notice when the email from Lisa Taylor was sent out just after 3pm.

Let's just say feeling that former leader and finance lead to should resign as councillors not limited to Tories

Croydon has declared bankruptcy after predicting £66m overspend, reports @mysouthldn via LDR @TaraOConnor_ mylondon.news/news/south-lon…

Now probably a good time to remind everyone @BureauLocal is holding an online discussion about the culture of secrecy surrounding local decision making next Thursday between 1-2pm. Sign up here crowdcast.io/e/what-goes-on…

Plenty of Croydon residents asking how they will be affected by this. A section 114 bans all non-essential spending, but there are things councils legally still have to do. Here's a decent explainer by the Beeb from 2018 bbc.co.uk/news/uk-451291…

.@mhclg has issued a statement in which it accuses Croydon Council of being "entirely irresponsible with their spending and investments".

A "rapid non-statutory review" of the council, announced after Grant Thornton's public interest report, is due to conclude later this month