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On Friday 25^th February the Local Government Chronicle (LGC) reported that Croydon Council faces “new financial collapse amid concerns it misused £73m”, and may need to issue a new Section 114 notice (de facto bankruptcy) following the 2 issued in 2020. 

The borough is seeking approval for £75m in loans covering the existing and next financial year.  This follows the towns auditors raising concerns about £73m from the sale of 350 properties, which LGC states that “Auditors have queried the way Croydon categorised that money as a capital receipt and spent it on transformation funding.”

The Chronicle reports “A dispute is understood to be ongoing between the council and its auditors Grant Thornton, which is still yet to sign off on the council’s 2020-21 accounts over the alleged misuse of the £73m”.

If auditors decided these funds should come from the revenue budget this could lead to a new Section 114 notice being issued, and no doubt further bad news for Croydon’s taxpayers.

Full article: https://www.lgcplus.com/finance/councils-in-anxious-wait-for-capitalisation-loan-approval-amid-s114-fears-25-02-2022/

In October 2020 Croydon Council’s external auditor’s Grant Thornton issued a report in the public interest which was a damning indictment of the council’s failings. In January this year Grant Thornton took the almost unprecedented step of issuing another report in the public interest, this time focusing on the refurbishment of the Fairfield Halls.

Reports have circulated in the press and national media on the failings of Croydon Council set out in the report.  There have been calls for police involvement and indeed Croydon Council has undertake is undertaking its own internal fraud probe. Even a Labour Councillor has called on the council leader Cllr Hamida Ali to consider her position.

At 32 pages long, the report goes in to significant details of the £67.5 million pound refurbishment of the arts venue by Croydon’s found property developers Brick by Brick, set against an original £30 million budget.

We bring you some of the low lights of the report below:

“The legal advice showed that if the land transfer option was properly implemented, it was possible to avoid any public procurement process, although it highlighted risks. In our view these risks were significant. The key to avoiding a public procurement process, it was said was that there was no positive obligation on Brick by Brick to do the works”

“Neither the Council nor Brick by Brick have been able to provide a properly executed written conditional sale agreement (which would have been in place had Fairfield Halls been transferred to Brick by Brick in line with the land transfer option) or properly executed loan agreements covering the funds provided by the Council. Without properly executed written agreements key elements of the legal advice were not met. Further, it is our view that the Council’s arrangement was at risk of challenge under procurement law as Brick by Brick was given a detailed specification of works (effectively amounting to a positive obligation to carry out the refurbishment) and the Council did not assess whether Brick by Brick was not acting as an independent company, in line with the legal advice”

“In obtaining external legal advice and not fully considering or implementing that advice, it is our view that the Council failed to ensure it was acting lawfully”

“As the Council was specifying the works it wished to see carried out, and the true objective of the licence was to oblige Brick by Brick to carry out those works, for the benefit of the Council, a public procurement process should have been carried out, and the entry into a licence without one did not reflect this underlying reality and in our view is therefore likely to have been found to have been a breach of public procurement law had it been challenged in court”

“This is a serious concern as to the Council’s financial and corporate management and also calls into question the lawfulness of the Fairfield Halls payments and suggests that the Council has not made proper arrangements for securing economy, efficiency and effectiveness in its use of resources”

“The Scrutiny and Overview Committee (the Committee) was active in attempting to scrutinize the project, its progress and related costs. Reports presented to the Committee, in our view, did not highlight the known increase in costs. Financial position of the project The June 2016 Cabinet decision referred to a £30 million investment in the project; we have found that the final expenditure on the project was £67.5 million. Despite the June 2016 Cabinet report referring to a financial appraisal, the Council has been unable to provide any such financial appraisal without which we are unable to conclude whether the project additional spend in excess of the budget was caused by inadequacies in the original budget setting or in controlling costs or in changes in the scope of the work during the project. With no subsequent Cabinet decision recorded on the project budget we consider the original Cabinet-approved budget to be £30 million”

“The approval decision in June 2016 was for a £30 million project to be completed by June 2018. In October 2018 the tolerance of a £50,000 / 0.1% of the project budget overspend (as reported to the Growth Board) and delayed project into a future financial year had been significantly breached. It is not clear whether the significant additional spend was escalated to an officer led leadership team or via another Council process. In our view, the then Executive Director of Place, as Chair of the Growth Board, had a responsibility to escalate a reported spend in excess of budget of £15.89 million to a formal Cabinet. We have been unable to identify any evidence of the escalating risks being reported to Cabinet formally”

“It is a serious financial control and legal failing that payments in excess of £60 million were made to a third party without sufficient clarity as to the powers relied upon or any properly executed written contracts. Both the then Monitoring Officer and the then section 151 officer had a responsibility to ensure that the legal loan agreements were properly executed prior to making payments. In our view, officers treated Brick by Brick as an extended department of the Council in terms of the financial payments made, and did not ensure the level of rigour we would have expected”

A full timeline is set out in the report.  Highlighted below is how according to the council reporting in a period of 14 months, £25million was added to cost of the refurbishment. 

The full report can be found at: https://www.croydon.gov.uk/sites/default/files/2022-01/London%20Borough%20of%20Croydon%20Public%20Interest%20Report%20Fairfield%20Halls%20260122.pdf?fbclid=IwAR356w8pnGHUH10crscxCLrKqMHENsR267cTtKfuJuPLrhUNM84HubVqoQM

Photo Source: Jim Linwood https://www.flickr.com/photos/brighton/6354011431/

Our friends at the Taxpayers’ Alliance have compiled figures for London boroughs’ council tax increases in the last 10 years. This is now being reported in the media and shows a rarity of something that Croydon Council excels at, sadly for the taxpayers of Croydon they excel at taking more of our money.

In the past decade council tax has risen across London from as little as 6.6% in Hammersmith and Fulham, to a whopping 31.1% in Harrow. Where does Croydon fit in all this?  Croydon takes up the bronze medal position with a massive 29.3% council tax increase during a decade of low inflation. Most worrying for the people of Croydon the worst could yet be to come.  Following de facto bankruptcy we all know council tax is only going one way to pay for the astonishing levels of debt.  What does this mean in real terms?  The average London Band D council tax is £1.633, Croydon comes in at 5th place across London at £1,888 pounds, some of both the biggest increases and highest payments are the result of years of mismanagement of the borough.

Since the Croydon Constitutionalist started we have reported on the councils wasting of public funds, bumper town hall salaries, councillors feathering their allowance nests, on it’s poor commercial investments and we’ve all seen their ‘grand plans’ lead to the collapse of the town centre as a shopping precinct. Important community amenities such as Purley swimming pool have permanently closed and we see threats to the towns dumps which will only increase fly tipping, already a scourge across the borough.

With elections due again in May and with the knowledge that many of the councils budgets that led up to the imposition of the Section 114 notice were voted for by both Labour and Conservative councillors, Croydonians may look for an alternative as either Mayor or as elected councillors. A good place to start would be the Croydon Constitutionalists hustings on February the 24^th.  Let’s hope the next decade is better for the people of Croydon, although we already fear council tax is only going one way.