England & Wales Finance

And then there were two…

And then there were two. This week, Croydon became the second council to issue a s114 notice in the last few years, following Northamptonshire in 2018. So that’s none for twenty years, then two in the last three years.

Just as with Northamptonshire, the Government has been quick out of the blocks in blaming the situation in Croydon solely on poor decision making in the council. MHCLG said that Croydon “has been entirely irresponsible with their spending and investments.” Others have argued that this reveals structural weaknesses in our system of local government funding.

It can’t be stressed enough that these are not mutually exclusive scenarios. In a broken system, the places that make the worst decisions will fall over first.

We should be clear that in Croydon, as in Northamptonshire, it may well be true that there have been poor decisions, poor financial management and poor corporate governance. Certainly, the auditor’s report pulls no punches and is pretty damning.

But we should also be clear that over the last decade not only has local government seen massive cuts in funding, councils have also been required to be more entrepreneurial and to raise more of their own income.

If you want councils to live by their wits then some will make bad decisions and some will fail. You can make an argument for that system just as you can make an argument for a system of central funding. But it’s disingenuous of the Government to act as though this isn’t, in fact, the system they have created.

Croydon, like Northamptonshire, is a result of our current system of local government finance not an exception to it. As we told the World Tonight programme yesterday, there are plenty of other councils with extensive and risky commercial investments.

So a s114 notice should be seen as a warning to the sector as a whole and should act as a spur to a much more radical debate about how we fund councils in a sustainable and responsible way.

We’ve seen in other areas of institutional life that the “one bad apple” theory seldom holds up. The problem here, as so often, is systemic.

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