Croydon: Fears over council bankruptcy as fraud claim made to police

The Met Police spokesman confirmed an allegation of fraud had been received and was "being assessed"

Croydon Council is said to be teetering on bankruptcy, with talks on a £25m taxpayer bailout under way as a new £73m shortfall is set to be revealed.

The borough received a £120m government bailout last year, the biggest to a UK council, but now faces a new crisis.

An allegation of fraud has also been made to police over the £67.5m revamp of Fairfield Halls, which helped tip the council £1.5bn into debt.

The Labour-run council confirmed it was waiting for sign-off on a new bailout.

The local authority failed to publish budget papers ahead of an expected budget-setting meeting on time, and wiped half this month's meetings from its calendar due to the delayed bailout sign-off.

The delayed budget report, published on Friday, set out how the council risks another de facto bankruptcy, recognised through the serving of a section 114 notice, due to an unresolved shortfall of £73m from allegedly botched property deals.

Detailing how the council "continues to face challenges", the interim director of corporate resources stated: "The most significant of these is Croydon Affordable Homes and Croydon Affordable Tenures, which could either be resolved subject to agreement with our external auditors or require a revenue charge to the Council's General Fund significantly close to £73m."

The officer explained the unresolved shortfall is still being investigated by the external auditors, Grant Thornton, which means the sum is not yet included in the budget.

He added: "If the final outcome is that this is an operating lease then the council is at risk of a further s114 notice being served due to the revenue charge of £73m needing to be met in-year."

The Met Police spokesman confirmed an allegation of fraud had been received and was "being assessed"

A Croydon Council spokeswoman said: "We aim to resolve these issues and close the accounts as soon as possible."

She added the council was still "waiting for the ministerial confirmation" of the next batch of payments, agreed as part of the original bailout deal, on the condition that the council keeps its finances in good order.

However, when asked if the latest round of bailout negotiations with the council was still ongoing, a spokesperson for the Department for Levelling Up, Housing and Communities (DLUHC) declined to comment.

Queen were among the rock bands to perform at the Fairfield Halls

Croydon Council effectively declared itself bankrupt in November 2020. The government stepped in with a planned £150m bailout package over the next four years, with £120m total signed off in the first two years of £70m in 20/21 and £50m in 21/22. The remaining £25m in 22/23 and £5m in 23/24 is yet to be signed off.

The council's Conservative spokesman said the Labour administration's "terrible choices have already caused one bankruptcy and it's frankly embarrassing that the council is having to go to government with a begging bowl to run basic services for local people".

"That is the price of Labour's bankruptcy: other hardworking taxpayers being asked to bail out their incompetence.

"We very much hope that the bailout is agreed soon so we don't see another bankruptcy situation."

An artist's impression of how Fairfield Halls was meant to look after the refurbishment

Property deals were also said to be at the heart of the funding crisis over the refurbishment of music venue Fairfield Halls, which has hosted stars including Queen, David Bowie and The Beatles. Those deals are now being assessed by police for any potential criminality following a formal allegation of fraud.

It follows last month's highly critical report by auditors Grant Thornton, who found paperwork was missing for loans lent by the council to the developer, and separately reported financial and legal failings by the authority.

The borough had loaned council-owned developer, Brick by Brick, millions for the venue's redevelopment and expected to be repaid from profits from the sale of new homes on land next door. But the house-building project was scrapped, leaving taxpayers to foot the massive bill.

The auditors said in their report: "As there was not a competitive tendering process by the council to support the appointment of Brick by Brick to manage the project, there is no evidence that the credentials and suitability of Brick by Brick to manage a complex refurbishment project were assessed by the council prior to selection."

They also said: "It is our view that the council failed to ensure it was acting lawfully."

• Croydon Council ends spending ban after £120m bailout

• Croydon Council to cut services to tackle £1.5bn debt

• Croydon Council bans new spending under Section 114 notice

An internal inquiry was launched at the council, but the Metropolitan Police could not act without any specific allegation of fraud.

Now, a formal allegation of fraud has been made to police. A Met spokesman said: "We are aware of the publicly available RIPI [report in the public interest] in relation to Fairfield Halls - an allegation of fraud has been received and is being assessed."

Follow BBC London on Facebook, Twitter and Instagram. Send your story ideas to [e-mail]