Croydon Bankruptcy Offers Cautionary Tale for Cash-Strapped Councils

An investment spree billed as an income generator to protect frontline services in a cash-strapped London borough has provided a cautionary tale about the perils of over-reach as local authorities across Britain face mounting financial and social pressures, the Financial Times reported. Twice in the past two months, the Labour-run council in Croydon, on London’s southern fringes, has issued a Section 114 notice — announcing de facto bankruptcy — after failing to fulfil a legal duty to balance its books. It is the second council forced into this position — after Northamptonshire in 2018 — although local governments across England have struggled with dwindling financing, exacerbated by the pandemic. Croydon now faces a sustained period of self-inflicted austerity to cap 10 years of cuts imposed by the central government. It has already axed 410 posts and is consulting unions over the loss of 142 more. Services — including children’s centres, libraries and welfare advice — will be stripped back under stringent “renewal” plans. The borough’s financial straits are indicative of systemic flaws in the way local authorities are funded, following the failure by successive national governments to heed calls for reform. Over the past decade, Westminster has slashed a fifth — £15bn — of central funding to councils without designing effective means for them to raise equivalent sums locally. “Many councils were in a difficult financial position before the pandemic,” said James Jamieson, chair of the Local Government Association, which estimates they are facing additional costs and income losses of £9bn this year, with a £3bn funding gap. Read more.