Local Government Finance: Croydon

Kelly Tolhurst Excerpts

Wednesday 9th December 2020 Commons Chamber

[The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Kelly Tolhurst)]

I am grateful to my hon. Friend the Member for Ruislip, Northwood and Pinner (David Simmonds) for securing this debate on such an important topic. I am pleased to respond on behalf of the Government. I thank my hon. Friend for highlighting his experience as a serving councillor in London, and agree that the mismanagement by the Labour-run Croydon Council, leading to the section 114 notices, damages the reputation of the excellent work that is carried out by local authorities up and down the country. He may know that I also served as a councillor and as a cabinet member on the Conservative-run Medway Council prior to being elected as an MP. It was well known then that Labour spent all the money when it was in control, and it was only when the Conservatives took control that fiscal prudence and oversight returned.

I will begin by talking about local government in general, and the steps that central Government have taken to support local councils nationwide, before looking at the issues in Croydon in isolation. The very first thing that I should say is how grateful the Government are to those who work for local councils up and down the country who have been tireless in helping our residents to meet the challenges of the pandemic. I am sure that Members on both sides of the House agree that the crucial role that local government plays in delivering the vital services on which we all depend will never be more evident than during this pandemic, and I thank everyone involved for their work.

As hon. Members will know, supporting councils to maintain critical services is a key priority for the Government. That is why, at last month’s spending review, my right hon. Friend the Chancellor of the Exchequer announced the key measures of income for local authorities’ core spending power to rise by 4.5% in cash terms next year. That equates to an additional £2.2 billion of funding for local government services. The Chancellor also announced estimated funding of around £3 billion in additional support for covid-19 pressures next year. This comes on top of the unprecedented support that the Government have committed this financial year, with over £7.2 billion for local authorities even before the extension of the contain outbreak management fund for local authorities under the highest level of restrictions that was announced as part of the covid-19 winter plan. This takes the total support committed to councils in England to tackling the impact of covid-19 to over £10 billion.

Councils also have access to the co-payment scheme, which has been extended to June 2021. Under this scheme, the Government will cover local councils for 75% of losses beyond the first 5% of previously planned income from sales, fees and charges. We recognise that, even with the considerable support already provided to local government, there may be individual authorities with unique circumstances. That is why we are encouraging them to approach my Department to discuss any concerns that they have about their future financial position. We remain committed to working closely with local authorities as they support their communities through the pandemic.

Let me turn to Croydon specifically. Since the start of the pandemic, the council has been allocated over £49.2 million in funding, including £33 million in un-ringfenced grants, £8.1 million through the infection control fund and £5.1 million through the contain outbreak management fund. That is on top of the £20.8 million increase in Croydon Council’s core spending power for 2021 that was announced on 6 February this year.

I turn to the current financial challenges in the London Borough of Croydon. As hon. Members are aware, the council’s financial director has now issued two section 114 notices: the first on Wednesday 11 November, and the second on Wednesday 2 December. Local authorities have a legal duty to balance their budgets, and section 114 notices are an important part of an accountability framework that guards against irresponsible or ineffective financial management. If a council judges that it is unable to set or maintain a balanced budget, the finance officer has a statutory responsibility to issue a notice. The council then has 21 days to consider what action it intends to take in response to that notice. Local government is independent of central Government, and the decision to issue a section 114 notice rests with the council at the local level. The Government have no role in the decision to issue a notice.

That said, the Government are well aware of the wider concerns around Croydon’s overall finances and governance. During the pandemic, my Department met with the council on multiple occasions to discuss its budgetary pressures. Croydon had publicly reported that there has been significant uncertainty around the council’s estimation of its budget gap throughout this period. On 23 October, the council’s auditors published a public interest report, which my hon. Friend alluded to, under the Local Audit and Accountability Act 2014. That report detailed serious concerns relating to governance, financial management and commercial investments. The report highlighted that the council had failed to recognise both the seriousness of the financial position and the urgency with which action needed to be taken.

Grant Thornton’s report suggested that there was little evidence of councillors holding officers to account or taking action to address the overspend reported in 2017-18, 2018-19 and 2019-20. The Labour-run council failed to address significant overspending, despite warnings before the covid pandemic. Sadly, the report lays bare the fact that Labour recklessly gambled hundreds of thousands, even millions, of pounds of taxpayers’ moneys on disastrous commercial property ventures. For example, it bought a hotel for £30 million—20% more than the asking price; this hotel has gone bankrupt—and a £50 million shopping centre, the value of which has crashed. Most damningly, it provided a loan of over £200 million to a developer, brick by brick, which is yet to make any payments, as my hon. Friend outlined. That has resulted in a staggering pre-covid £1.5 billion debt—larger than that of any other London borough.

Local authorities are independent of national Government and directly accountable through their elected councillors to local residents. Where powers in the Local Government Act 1999 are used, that involves the passing of functions in those democratically elected members to people appointed by the Secretary of State. Intervention in a local authority by central Government is therefore not to be undertaken lightly. We have been clearing the path such that the powers will be used only when there is evidence of systematic and significant failure at a local authority. Our firm preference when a local authority runs into difficulties is that it will tackle those challenges itself, possibly with sector-led support, as my hon. Friend mentioned. That continues to be the case.

However, it is worrying that the interim chief executive officer said in November, when she wrote to councillors:

“Colleagues across the council are still putting forward requests to spend money and for growth next year that we simply cannot afford.”

That is why, on 29 October, my right hon. Friend the Secretary of State for Housing, Communities and Local Government announced a rapid, non-statutory review of the council to be conducted by an independent review team. Announcing the review, my right hon. Friend was clear that the situation described in the public interest report is

“deeply concerning and unacceptable”

and that residents of Croydon

“deserve… better… from their local council.”

I am pleased to confirm that the independent review team has reported its findings to the Secretary of State. He is considering the report and will respond in due course. I can reassure Members that the Secretary of State will take a keen interest in the steps the council will need to take to address the governance and financial management issues that have been identified through the independent review, ensuring that the residents of Croydon receive the services they have every right to expect.

I can, of course, understand that the current situation and the ongoing existence of a section 114 notice might be a matter of concern for Croydon residents. Once a notice has been issued, the council is required to operate controls on spending for 21 days. During this period the council may not enter into any new agreement that involves expenditure unless a finance director has specifically authorised the spend. However, we would expect existing expenditure to continue, such as salaries, pension costs and expenditure required to honour existing contracts and legal requirements. Officials from the Ministry of Housing, Communities and Local Government have been in discussion with the council, which has confirmed that services linked to safeguarding vulnerable people and statutory responsibilities will continue to be delivered. We have also been clear that the council should notify us if it anticipates that spending controls during the 21-day section 114 period will prevent it from delivering any services that are required to safeguard the residents of Croydon during the pandemic, and we will continue to monitor.

At the end of the 21-day period, the council must meet to discuss a plan to bring the budget back into balance. The council held a meeting in response to the first section 114 notice on 1 December, where it was agreed that it was not possible to deliver a balanced budget, leading to the issue of a second notice the following day. It is for the council to decide what steps it needs to take to balance its budget. The council made it clear in its section 114 notices and accompanying reports that it will submit a request later in December to the Government for financial support to help it bring the budget back into balance. That request will be considered as and when it is received.

I thank my hon. Friend for calling this debate on a very important matter, and it is a shame that Labour Members who represent the area are not here. As I have outlined, the Secretary of State will be responding in due course to the independent report of the non-statutory review team, alongside any request that Croydon Council may submit to Government for financial support. The Government will continue to take a keen interest in the steps that Croydon Council is proposing to resolve the matters that have been outlined so eloquently by my hon. Friend. It is imperative that the council moves forward towards a financially sustainable footing to ensure that it continues to deliver for the communities it serves.

Finally, I repeat that, although these are exceptional circumstances and many councils up and down the country face challenges due to the pandemic and demands on their purse, they are still able to provide that robust oversight challenge and deliver balanced budgets. I assure residents that many local authorities up and down the country operate in a very good way, which we happily support going forward.

Question put and agreed to.