Croydon LBC faces another financial meltdown amid fears it misused £73million – which may need to be cut from its revenue budget – as it also faces an anxious wait to find out whether ministers will support a capitalization loan of £25 million.
The London Borough is among eight councils still awaiting ministerial approval of the capitalization loans they have requested for the next financial year, and is unable to establish a balanced budget for next year until guidance are not approved.
Croydon, which is still seeking approval for a £50m loan for 2021-22 as well as £25m for next year, is set to face the prospect of having to issue another notice under section 114 if he does not get the green light for the loans. This comes after two Section 114 notices were issued in 2020.
The government has so far approved the financial lifeline only “in principle”.
A Croydon budget review meeting which was scheduled for Tuesday has been postponed for a week and the report of the meeting has yet to be released.
The report is expected to detail Croydon’s use of its elaborate network of housing companies, centered on Croydon Affordable Tenures and Croydon Affordable Homes, to classify a sum of £73million as a capital inflow.
Complex corporate structures allowed the board to circumvent rules related to the treatment of the right to purchase receipts.
A dispute is said to be ongoing between the board and its auditors Grant Thornton, which has yet to approve the board’s 2020-21 accounts over the alleged misuse of the £73million.
LGC understands that 350 properties were sold to Croydon Affordable Homes, who then sold the proceeds from these to an investment company, with the money returned to the council. Auditors questioned how Croydon classified this money as a capital receipt and spent it on financing the transformation.
The council’s explosive report awaiting publication is expected to present the £73million as a risk the council is now exposed to.
If the auditors decide that the £73m should not have been classed as capital revenue, then that expenditure will have to come from the council’s already stretched revenue budget. A source at the council warned that this would then lead to the “collapse” of the revenue budget.
“The council will then have to burn whatever it has put back into storage and this could lead to another Section 114 claim,” they warned.
The issue is separate from the ongoing controversy over Croydon’s £67.5million redesign of the Fairfield Halls concert venue. A fraud allegation has been made to police over the matter, after a public interest report by Grant Thornton uncovered a number of serious corporate and governance failings at the board regarding the development.
A Croydon spokesperson said: “The council is on track to deliver a balanced budget next year and currently expects £1.8million to be underspent this financial year.
“We are working with our external auditor to resolve any outstanding legacy issues which may impact the 2019-2020 accounts, one of which relates to the historical accounting arrangements for Croydon Affordable Homes. We aim to resolve these issues and close accounts as soon as possible.
“Cabinet documents setting out this year’s budget and legacy risks will be released later today.”
So far, there is no indication that the government will approve requests from other councils for funding guidelines covering this financial year – which ends in less than six weeks.
Luton Council originally made a request for £14million for this year, but a council spokesperson told LGC it had “worked hard to stabilize our finances, following the devastating impact of the pandemic on our income, to avoid having to use it”.
Slough BC originally asked for £15.2m for the current financial year, but their request has since risen dramatically to £201m with a further £72m to cover next year.
A spokesperson for Slough said it is in “regular liaison with DLUHC” and plans to meet with management ahead of its next budget meeting, which will be on March 10. “We took that into account in our planning,” he added.
A DLUHC spokesperson said: “The government is working closely with [Croydon] and the Improvement and Insurance Committee as Croydon Council resolves its financial issues. In this context, we are looking carefully at what additional support Croydon may need. »
