£66m shortfall as Croydon Council fails to balance budget

Croydon Council has become the first London borough in twenty years to issue a section 114 notice banning all new non-essential spending as the authority admitted it can no longer balance its budget this year

The council, which was heavily criticised for its  ‘dysfunctional’ financial governance  in a public interest report by external auditor Grant Thornton, is now to draw up an emergency budget is drawn up to find further savings in this and the coming years.

In a letter to councillors, finance director Lisa Taylor outlined the issues facing the council including a potential budget shortfall in the current financial year of around £66m, up from the original estimate of £50m.

Taylor said that she was not confident the council ‘can make the level of savings required to deliver a balanced budget’, and warned that the overspend had not reduced by as much as previously reported.

The council had previously acknowledged its worsening financial situation, and said it has set in train a number of improvement and savings programmes to help put it back on a stable financial footing. It is also subject to a rapid review by the Ministry of Housing, Communities and Local Government (MHCLG) after the council requested additional emergency funding, amid concerns about its governance and investment policies.

The section 114 notice bans all new expenditure, with the exception of safeguarding vulnerable people and statutory services.

Councillor Hamida Ali, who became leader of the council three weeks ago, said: ‘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.

‘We know that we cannot do this alone and we want to work in partnership with everyone with a stake in Croydon’s success. That includes seeking financial support from the government and today’s section 114 notice is a part of making that case.

‘My priority is rebuilding a financially sustainable organisation, which provides the value for money and high-quality services that residents deserve.’

A MHCLG spokesperson said: ‘Councils are responsible for balancing their budgets and it is right that Croydon council takes the necessary decisions to manage its own finances.

‘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.’

Croydon Council is holding an extraordinary meeting to discuss the findings of Grant Thornton’s public interest report on 19 November at 6.30pm.

Croydon Council documents are here

Further reading:

Review of Croydon Council’s ‘dysfunctional’ financial governance

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