Ex-Croydon leader and finance chief answer Section 114 questions

Just before this, former council leader Tony Newman and former finance member Simon Hall stepped down from their positions.

Both remain as councillors and have resisted calls for them to resign.

The council is facing having to make major cuts, including up to 400 jobs, as it deals with a more than £60 million hole in the yearly budget and £1.5 billion worth of debt from borrowing.

Since 2015 reserves at the council have hovered around just £10 million but in 2019/20 this dropped to £7 million.

Many have blamed councillors Newman and Hall for their part in the mismanagement of the budget over the past six years.

In October, shortly after the pair stepped down, the council’s auditors Grant Thornton published a damning report which slammed  ‘collective corporate blindness’ and shows concerns were raised as far back as 2017.

One of the major factors in the council’s financial demise was investments to bring money into the council which were funded by borrowing.

The Colonnades retail park in Purley Way was bought in £53 million but income from this investment has been badly hit by the pandemic.

While the Croydon Park Hotel was bought for £30 million but the operators went into administration in June 2020 handing back the building to the counci to decide what to do with it in the long-term.

Tony Newman

The authority also lent £200 million to council-owned developer Brick by Brick which auditors said was not subject to sufficient ‘rigour and control’ and had not yielded significant enough returns.

We asked councillors Newman and Hall to answer 10 questions on Croydon’s financial crisis and here are their answers in full:

1. What is your response to calls from the opposition to step down as councillors?

The key issue that Croydon Conservatives are fully aware of is the damage 10 years of austerity and cuts have inflicted on the council. Their attempts to personalise the issue in such an inaccurate, vicious and derogatory fashion is disappointing, and has echoes of the sort of approach we saw Trump take in America, and should have no place in our politics. It is also flatly contradicted by the auditors who talk of collective failure and who did not name either of us at any point in their report.  As local councillors who both live in our wards our boss is the electorate and it is in them we place our trust.

2. Do you think Croydon issuing a S114 notice could have been avoided? 

The issuing of a Section 114 became sadly inevitable as we went through last year. Whilst we are immensely proud of the phenomenal work our staff did helping tackle the first wave of Covid, including securing Croydon’s 140 care homes and helping shield 15,000 vulnerable people, with hindsight, as 2020 went on, spend on key areas increased unsustainably, especially when the Government failed to deliver on its commitment to fund councils fully, instead of leaving Croydon £38 million short.

Councillor Simon Hall

However, the core challenge has been 10 years of austerity amounting to a 70 per cent cut in Croydon’s funding from government, when we were already grossly underfunded.  We, like most councils, have had ever increasing pressures on our adult and children’s social care budgets and we were determined not to make the most vulnerable in our community suffer.  This has had a unique impact in Croydon, where we have seen rapid demographic change.  For example, Croydon is now ranked as more deprived than Lambeth and yet we get £70m per year less government funding (on a per capita basis).  In addition, we have had the significant challenges of supporting the country’s unaccompanied asylum children, and transforming our children’s services to get a ‘Good’ rating from Ofsted.

3. Why was the decision made to invest in The Colonnades and Croydon Park Hotel? 

The Colonnades and Croydon Park Hotel were pre-Covid investments that were similar investments to what a number of councils had undertaken. They, and smaller asset investments, were generating some £2.5 million per year (net of costs) that was going straight into supporting frontline services. Even under the current challenging services they are at least breaking even and offer the council the opportunity of a robust long term investment.

4. Do you think there was enough scrutiny for these acquisition decisions? 

The decision on Croydon Park Hotel was subject to detailed formal scrutiny and that decision, along with the policy for future investments such as the Colonnades was approved on a cross party basis.  In addition, each acquisition was subject to both internal and external advice and due diligence.

5. When did you first know that issuing a S114 notice was likely?

Our finance director had, as early as Spring 2020, talked about the possibility of a Section 114 notice, but as we all waited to see if Government would deliver on its commitment to fund all the Council’s Covid spending as promised (currently still a 38m shortfall ) and prior to taking further budget measures through Full Council it was not issued. Like everyone else and as our finance director confirmed publicly in November, we only heard on that day in November when the Section 114 was issued.

6. Do you think any mistakes were made with the setting and running up of Brick by Brick?

With hindsight, it is clear that Brick by Brick would have benefited from greater member input and scrutiny, a greater focus on delivery and much more active involvement of the council-appointed directors.

7. Should Brick by Brick continue to operate in Croydon? 

Our new leadership and officers have had a long hard look at Brick by Brick, supported by external advisers, and have clearly concluded it should continue for now.  Given where it is with many sites and with a focus on delivery, it has the potential to deliver much-needed housing, including considerable numbers of high quality local affordable homes, and pay the moneys that it had committed to paying the council in its business case.  The report to Cabinet in a month should give us all greater clarity on the appropriate way forward.

8. Do you think the council had any other option than to borrow the money that it has over the past six years? 

The bulk of the money borrowed in this period was to invest in much needed new schools and new homes, as well as unwinding a very costly off-balance sheet arrangement regarding Bernard Weatherill House inherited from the previous administration and income-generating assets. [The new council offices were built under the previous Conservative administration in 2014 at a cost of more than £140 million  – documents show that the council borrowed £150 million for this project and buying office building Davis House]

9. What is your message to Croydon residents about how the council’s financial state will affect them? 

The clear message to Croydon residents is colleagues and officers are working hard to ensure key frontline public services are being well maintained as they clearly are, however like many councils some reduction to services and tough choices are having to be contemplated. This will mean that the council will not be able to do as much as it did and services will have to be delivered in a very different way, with a different partnership with the community.

10. And finally, will you apologise for your part in the council having to issue a Section 114 notice? 

Our new council leader and ourselves have apologised for the need to issue a Section 114 notice and we repeat that apology now.  However, we must reiterate the origins of this, not least a 38m Covid-funding shortfall and the flawed funding formula, where politicians of all hues should come together to make the case for Croydon to be treated like neighbouring boroughs, for without that Croydon residents will suffer and the Council will undoubtedly face the same financial challenges in the years ahead.