Mayor of Croydon – Q and A
Earlier this month the government gave the council permission to raise the Council Tax by 14.99% to protect and provide services that our residents rely on, while we sort out Croydon’s financial collapse.
This is part of a package of support that I have requested from the government to help manage Croydon’s financial crisis. I am also asking them to write off some of the council’s toxic debt, which is severely hampering our recovery.
Given the scale of the issues the borough is facing, incredibly difficult decisions will need to be made in order to put us back on a financially stable footing for the future.
I’m regularly asked by residents why the council is in this position and I want to be clear about where we are and what we need to do to fix this.
Why is Council Tax rising by 14.99% this year?
Since I was elected as the Executive Mayor of Croydon last May, I have been working to find out what went wrong, and to take the difficult but necessary steps to get the council back on a stable footing.
Given the scale of the financial collapse Croydon has experienced, incredibly difficult decisions need to be made, and that is why we are proposing a one-off increase in Council Tax of 14.99% this year. This amounts to around an extra £4.50 a week for the ‘average’ Band D property. We will not be asking the government to exceed the cap again.
The scale of Croydon’s financial crisis means that we must look at every option possible to protect essential services. I have already directed the council to make £36 million of savings this year – one of the largest savings programmes in the country. Without this proposed rise in council tax, we would need to make £20 million of cuts on top of this. Such additional reductions would be dangerous to so many across Croydon and would put vital services to vulnerable residents at risk. I am just not prepared to do that.
We also cannot keep borrowing money because this means we would never get out of debt and the cost to residents would rise in the long term.
I know this is going to be difficult for many people in Croydon, so I have made sure we will also significantly increase the support we provide to low-income households, to protect those who cannot afford to pay their Council Tax and would otherwise be pushed into hardship by the increase. In addition to the normal Council Tax support scheme there will therefore be a new £2 million hardship fund to help those than need it the most.
I was elected to clean up this mess and I will. It won’t be easy for any of us, and it will take time.
How is this Council Tax rise legal without a referendum?
Generally, any authority proposing an increase in council tax above 4.99 percent must hold a local referendum and obtain a ‘yes’ vote before implementing the increase. However, this year the government provided special permission to three financially troubled councils, Croydon included, to raise council tax by over the usual 4.99 per cent without the need for a referendum.
What is the scale of Croydon’s financial issues?
The toxic £1.6 billion debt and financial failures of the previous administration has left Croydon with a hollowed-out council which has been reliant on government bailouts for multiple years. That clearly isn’t sustainable in the long-term.
Over the past two years the council has issued three section 114 notices because it has not been able to balance its books, with multiple years of accounts left open and unaudited.
Last November, Croydon’s chief finance officer warned that the council is financially unsustainable and would not be able to balance future budgets without a new solution from government.
As I’ve outlined, the council already has one of the largest savings programmes in the country and if we do not raise Council Tax we would need to make an extra £20 million of cuts. This scale of reductions would put vital services to vulnerable residents at risk.
How was this level of debt generated?
Most local authorities have debt, rather like a mortgage on a property, and borrowing costs running into many millions in order to deliver services to residents, but this debt needs to be affordable.
Croydon’s debt situation became toxic and unaffordable due to the types and level of debt and the speed at which it was borrowed.
In 2014, Croydon’s debt levels were around £720 million. This included debt supporting capital borrowing of £334m from the housing revenue account, used to look after social and council housing in the borough. The rest of the borrowing supported the general fund, used to deliver everyday services and invest in vital infrastructure such as roads and schools.
Whilst this may seem a lot of debt it is a relatively normal amount to be able to manage, if the proper financial and governance structures are in place.
However, Croydon’s General Fund debt levels have since roughly trebled to over £1.4billion, with failed investments in hotels, shopping centres and housing companies which have cost the council millions and left us unable to pay it back.
What steps have you taken to fix the council’s finances?
I am currently in discussion with the government to agree a reduction in the Council’s long-term debt. These steps, together with the continuing programme to transform how the council operates, are important and necessary steps to making Croydon a sustainable local authority.
One of my first actions on becoming Mayor was to launch a forensic ‘Opening the Books’ review of the council’s finances, which uncovered significant financial issues with the budget that I had inherited, including:
- Parking and traffic income over-estimates – Almost £14 million
- General Fund spending wrongly charged to the Housing Revenue Account – £9.6 million
- Errors in the housing benefit budget – £9 million
- One off benefit money from the NHS built into the ongoing budget – £5 million
- Underestimate of Minimum Revenue Provision – £2.6 million
- Landlord licensing income wrongly assumed – £1.6 million
- Incorrect capitalisation of salaries – £2.3 million
- Structural shortfall in housing funding – £5.3 million
These issues add an extra £49 million of costs to the council’s budget each year, as well as a one-off bill of £161.6 million to balance previous years’ accounts. Three years’ accounts still remain open.
As a result of this exercise, I have already taken significant action by:
- Introducing a Deficit Recovery Plan to get on top of in year overspends and reduce unnecessary spending by millions of pounds.
- Identified £36 million of new savings for the coming financial year. This is one of the largest savings programmes of any council in the country.
- Identified and begun the process of marketing around £100 million of council assets and buildings for sale to reduce council debt levels.
- Supported a detailed investigation into potential fraud in the refurbishment of Fairfield Halls.
- Developed a new enhanced Council Tax Support Scheme to protect residents most affected by potential Council Tax rises.
- Started negotiating with government to find a long-term solution to Croydon’s debt problem, including potential capitalisation loans and debt write offs.
How are those responsible for these debts – former council officers and members – being held to account?
There have been investigations into what happened at Croydon Council, what led to its financial collapse and the roles and responsibilities of officers and members. These include the Penn report, which has now been published, and the Kroll report, and the findings from those reports will be published this spring.
The next step will be for the committee to consider the report in conjunction with the Kroll investigation and decide what actions we might take to hold those responsible to account.
I hope this will help to close this regrettable chapter of Croydon’s history so that together we can move on and focus on rebuilding our council and restoring pride in our borough.