The 400,000 residents of Croydon are facing a bleak winter as their council was declared bankrupt for the third time in two years. Last week the south London council issued a Section 114 notice after finding a £48 million blackhole in its books. This means it is banned from spending on anything except “core statutory services”.
Another bankruptcy will mean even more cuts to public services and jobs. Already two years and two bankruptcies have led to £90 million in cuts. Fresh cuts will spell disaster for residents caught between Tory government underfunding and Labour and Tory council mismanagement.
In the borough some 33 percent of children live in poverty and some 22 percent of workers are paid below the London Living Wage. The council has also announced it was paying out a sixth of its total budget on debt repayments. It owes a whopping £1.3 billion in debt and needs to pay £47 million a year to pay this off.
It was previously a Labour‑run but was taken over by the Tories in May 2022. Tory mayor Jason Perry pointed to “toxic historic management” for the failings. This is symptomatic of a new era of local government financial instability facing pretty much every council in Britain after over ten years of cuts to budgets.
Croydon is in such a deep hole because, faced with devastating cuts from central government, it decided not to fight but to implement the pain. It could, and should, have refused the cuts and resisted. Instead the council engaged in dodgy gambling in the property market to keep it afloat.
It snapped up commercial properties, including a £53 million purchase of the Colonnades retail park. Instead of making cash to fund council services, this “investment” put public money into private hands. Council bosses are now looking to sell 18 properties including the retail park, local libraries, youth centres, leisure facilities and community hubs.
And they’re hoping for a cash injection from central government, on top of the £120 million given in November 2020. But the Department of Levelling Up, Housing and Communities has indicated it won’t make a decision on further funding until February.
When the Tories left office in 2014, there was a debt of £1 billion. But it was Labour which was responsible for pushing ahead with the doomed regeneration plan. Whatever amount does or doesn’t come from Whitehall, misery is sure to be coming in Croydon. The Tories are also asking for permission to hike council tax above the current limit of 5 percent next year—which would only generate £11 million.
Croydon isn’t the only council struggling to pull itself out of the red. Just one in five of England’s largest councils are confident they can balance their books next year, according to a survey by the Country Councils Network. Councils are facing the squeeze partly because of increased demand on services, rising interest rates and soaring energy bills.
But the single biggest reason is how local authority funding has been consistently slashed by the Tories since they took office in 2010. And consultancy firm Grant Thornton estimates that the local government shortfall will be £9 billion by 2025-2026. It’s heralding a new era of councils teetering on the edge of financial chaos.
Until Northamptonshire County Council went under in 2018, only two Section 114 notices had been issued since 1988. Others have followed with increasing frequency. What once was an extraordinary measure is now becoming part and parcel of delivering vital public services. Politicians in every section of local and national government are culpable.
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