Croydon needs £540m of debt written off or financial breaking point could hit

The authority is still waiting to hear back whether the government will wipe £540million worth of debt.

The council’s huge £1.6billion total debt costs it £47 million a year to pay back and keep up with interest payments.

The council has also asked the government for £224m bailout loan, known as a capitalisation direction, to balance the council’s budget.

This is broken down into  £161.6m to deal with historic financial issues and another £63m to plug the budget gap in 2023/24.

The budget was discussed at a cabinet meeting on Wednesday (February 22) night.

Chair of scrutiny, Councillor Rowenna Davis, told the meeting: “In the long term, this budget does not and cannot guarantee the council’s financial security or stability without bigger structural intervention from the government. 

“The council’s debt is so big and the interest on it so crippling that Croydon cannot cut its way out of it.

“The only reason the council’s budget looks balanced over the next few years is because government is allowing it to borrow more to fill the holes. 

“This is equivalent to putting day-to-day spending on Croydon’s credit card which will only add to debts and interest.

“The only way out of this is the government allowing the council to go further and actually write off Croydon’s debt.

“There is currently no legal framework for government to write off a councils debt, it is unprecedented, there are no set timelines or guarantees. 

“There is a real risk this council could be in the same position next year, limping on, borrowing more in each budget cycle and never dealing with the route cause of the problem.”

Cllr Davis added that while Croydon gets back on track it is the residents who will be impacted as council tax is set to increase by 15 per cent in April.

Mayor of Croydon, Jason Perry, said: “It is indeed unfair that the residents of this town pay the price for the mistakes of people over the past few years in this town hall.

“It is unprecedented, no authority has ever put itself in this position before.”

Cabinet member for finance, Councillor Jason Cummings, admitted that continuing to borrow more from the government was not the answer to Croydon’s problems.

Cllr Cummings said:  “The current model of capitalisation directions is unsustainable. Clearly, ongoing borrowing to fund revenue is not a sustainable position, that is why the government is so focussed on a solution to Croydon’s problems. 

“It is the case that we do not have assurances of what that end solution is going to be.

“What government is being asked to do is a long and complex task which needs to be seen to be fair.

“This will take time and we have built that into the budget… the expectation that time will have to be taken.

“It is also with saying that while the council has made a request for writing off debt that may not be the solution that comes forward.”

Croydon Council is hoping to hear back about what government support it will receive by the end of February.

This is ahead of the budget going to full council on Wednesday, March 1.