Croydon Council is no longer bankrupt after getting a government bail out but the interest payments alone will saddle tax payers with an additional debt of £24million.
As tax payers faced an average council tax hike of almost five per cent it emerged the council also borrowed £13million from Scottish tax payers during the Covid crisis.
Worst still Croydon had agreed to pay back high interest rates on both the Scottish loan and the £120million it borrowed from the government to secure the investment.
The formal ending of the section 114 notice, which was issued in November, was possible after the government allowed the council to borrow the money but if it can’t meet the repayments on the loan it may have to borrow more.
The council leader Hamida Ali, interim CEO Katherine Kerswell and interim director of finance Chris Buss gave evidence to a government select committee last month about Croydon’s S114 experience.
MP Bob Blackman asked whether the Treasury attaching a borrowing rate of one per cent above the normal Public Works Loan Board borrowing rate for the loan was “fair and reasonable, especially given interest rates at the moment?”
The council’s interim finance director Chris Buss said: “Our hope is that we will be able to deal with a significant part of the amount we will have to borrow through the realisation of capital assets—we may not be able to do all of it, but we do hope to do that—and the repayment of loans that we have outstanding. Hopefully we will not have to borrow.”
The loan means the council can balance its in year budget and set one for 2021-22 but the bail out is conditional on the council delivering its renewal improvement plans
Croydon’s Renewal Plan maps out proposals for further savings, strengthening governance and financial practices, bolstering reserves and new ways of working to put the borough on a more sustainable financial footing.
It will also need to address funding gaps caused by the demands of tackling the Covid-19 crises, which has already cost Croydon over £46m.
In April last year Croydon borrowed £13million from Midlothian Council agreeing to pay 1.85 per cent in interest payments per annum for the two-and-a-half year loan period which will see Croydon pay back an ‘attractive’ £600,000 return on the Scottish council’s investment.
Cllr Ali, leader of the council said: “Although the section 114 notice is no longer in place, there is still a lot of work to be done and savings to find for the council to live sustainably and within its means for the long term.”