Harry Fone is grassroots campaign manager for the TaxPayers’ Alliance.
Like Northamptonshire before it, Croydon Council has declared itself bankrupt. But what went wrong? Many blame austerity and coronavirus, but this is too simplistic. Through local activists, the Croydon Constitutionalists, I’ve learned of the hapless housing project, ill-judged investments, and wanton waste that sealed the council’s fate.
Is austerity to blame?
Croydon Council’s leader, Hamida Ali, has stated “austerity” is a major reason behind the bankruptcy. On the face of it, she may have a point. As the Council’s 2019-20 statement of accounts makes crystal clear, “since 2010, when austerity began, Croydon has seen its funding from Central Government reduce by 75 per cent”.
But compare it to other London boroughs and a fuller picture emerges. Between 1997 and 2010, before the cuts, Croydon Council raised rates 13 out of 14 years, leaving it with the seventh most expensive council tax charges in London. Residents were consistently asked to dig deeper into their pockets long before the coalition government. Looking at a 20 year period from 1997 to 2017, Council Tax rose in Croydon by 69.3 per cent in real terms, the third highest rise in London and compared to a city-wide average of 42 per cent. Most London councils have lower Council Tax bills and avoided bankruptcy. What’s special about Croydon?
Brick by Brick
One factor that cannot be ignored dates back to 2015. Croydon Council set up Brick by Brick (BBB), a company tasked with building 500 homes a year. Financed by £214 million worth of council loans, BBB made a loss of £774,952 in March 2019, despite obtaining some sites for just £1. It’s yet to make a single repayment on money it borrowed, having completed ony 283 homes in that time (less than half of which are deemed affordable). The latest set of accounts are still pending, but with profits forecast at a measly £250,000, Croydon residents will be waiting a long time for the homes they were promised or the loans to be repaid in full.
PwC summed it up, explaining, “the delays in bringing new homes to the market has put the Council at serious financial risk and resulted in only a handful of new homes being available. As a consequence, savings have not been made.” With almost nothing to show after five years and millions of pounds potentially down the drain, Brick for Brick has undoubtedly had a big role to play in Croydon Council’s downfall.
Risky business
Commercial property investments also failed to deliver. Take just two examples: the Croydon Park Hotel and the Colonnades retail park. Using the Public Works Loan Board (PWLB), the council purchased these for a cool £80 million. The hotel is now in administration and, given the current circumstances, the future of the Colonnades doesn’t look rosy either. But again it’s not simply about covid. As my colleague, Jeremy Hutton, explained in his analysis of local authority commercial property investments, high street retail investments were already struggling before the pandemic.
Frankly, access to loans from the PWLB was all too easy. One former council leader described the process as “absolutely bonkers” having requested hundreds of millions of pounds only to receive it “three days later.” No wonder then the Treasury has just this month imposed tighter restrictions on lending. Sadly it came too late for Croydon. The most recent accounts show the council has over £900 million of outstanding PWLB loans. Their investment fund is forecast to deliver a net return of only £82,000 in 2020-21. Once interest payments are factored in, the council could end up making a loss of around half a million pounds.
A tale of two chief executives
Colm Lacey is chief executive and founding director of underperforming Brick by Brick. He was remunerated to the tune of nearly £150,000 in 2018-19, with fellow directors also enjoying six-figure pay packets.
What did a recent strategic review by PwC make of them? It was scathing. “There is currently no financially qualified member of the Board to provide challenge to BBB’s reported performance or forecasts,” they said, citing the “unavailability of robust financial information from BBB.”
A glance at Mr Lacey’s LinkedIn profile may explain why. It shows a long career in the public sector, with no hint of financial qualifications aside from a degree in Economics and Political Science. If PwC’s assessment is correct, then two questions spring to mind. One, why was he chosen for this role? Secondly, why didn’t he appoint at least one financially literate member to the board? Those responsible for his appointment must have their feet held to the fire.
Until September this year, Jo Negrini was chief executive of Croydon Council. Paid £218,358 in 2019-20, she was one of 15 staff receiving over £100,000. Despite overseeing a rise in debt to £1.5 billion that led to the council’s downfall, she left with a severance package reportedly worth £440,000.
As Council Tax increased, both Negrini and Lacey repeatedly failed local residents, but enjoyed gold plated pay at their expense. Council leaders shouldn’t assume that paying top dollar for chief executives will benefit taxpayers. All too often it ends up costing residents dear.
What can councils learn from Croydon?
For starters, councils should only enter into the investment world if they know what they’re doing. They must remember that public money is at serious risk. It’s very welcome that the Treasury is imposing restrictions on PWLB loans; councils should seek to diversify portfolios and demonstrate financial expertise before any investments are undertaken.
Perhaps most importantly of all, council bosses must focus on their statutory responsibilities and stop trying to reinvent the wheel. They must deliver the best services at the best possible value to residents, relentlessly eradicating waste and ramping up efficiency, in order to keep any rises in council tax to an absolute minimum. There are plenty of places they can make a start. By abiding by these simple principles, councils can avoid Croydon’s fate.