Croydon Council has put a freeze on all non-essential spending by issuing a Section 114 notice, admitting that council mistakes, austerity and the COVID-19 pandemic have contributed to a £66m budget deficit.
The Labour-run local authority is the second council to take the extreme measure in recent years after Conservative-controlled Northamptonshire County Council became the first local authority to issue a Section 114 notice in more than two decades in February 2018.
Croydon described the move as a “significant step” and said it was a recognition that the council would not be able to balance its books for the year, as required by law. An emergency budget will now be drawn up to find savings.
Council leader Hamida Ali, who took over the role last month, 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.”
It comes after central government sent in a taskforce to oversee the council’s finances following an auditor’s report that accused Croydon of “corporate blindness”.
Auditing firm Grant Thornton found that Croydon had borrowed £545m in the past three years to invest in housing and commercial property, including a £200m loan to its own housing development company Brick by Brick.
Croydon will now freeze spending on all but essential services to protect vulnerable residents.
Rob Whiteman, chief executive of the Chartered Institute of Public Finance and Accountancy, which sets the prudential code for borrowing in local authorities, said the council had done “entirely the right thing”.
“There are some councils which would be resilient but for COVID-19, but that’s not the case for Croydon. The public interest report shows there are far more fundamental underlying problems at Croydon and therefore the Section 114 notice is now being issued.”
The Ministry of Housing, Communities and Local Government has been contacted for comment.