As if being subjected to two public interest reports from clearly unimpressed accountants wasn’t bad enough, Croydon Council’s casino-like borrowings have also been investigated by local authority auditors in Scotland. .
Midlothian Council have brought in Ernst and Young, their external auditors, after it was revealed the Scottish local authority lent Croydon £13million in 2020.
Alarm bells were raised by Midlothian’s audit committee when they were told they had made the loan to Croydon at the height of the first covid lockdown, in April 2020, but then found the South London council was in deep financial turmoil.
Local authorities across the country have been encouraged by the government to borrow billions of pounds at very low interest rates from its Public Works Loan Board. Most of Croydon’s £1.5billion debt comes from this source.
But there has also developed a secondary borrowing market between advice. These are often shorter term loans for which higher interest rates have been charged. There are over £15billion in inter-authority loans across the UK.
It has been suggested that in the depths of its financial collapse, Croydon was taking out short-term borrowing to meet repayments of other borrowings.
In 2020-21, Croydon expected to receive income from Brick by Brick, its in-house homebuilders, of around £32m in profit and loan and interest repayments. The council had loaned around £200 million to Brick by Brick, much of the money coming from the PWLB. But by the end of the 2020 fiscal year, Brick by Brick had not repaid a penny.
In April 2020, when Jo Negrini was still chief executive of the council, Croydon agreed to pay Midlothian 1.85% interest per annum for the two-and-a-half-year loan period, nearly double the rate of interest on PWLB loans. The Scottish council were supposed to make a £600,000 return on their loan.
Ernst and Young has been called in to carry out a ‘widespread review’ of Midlothian’s cash management policy following questions about its investment in Croydon.
Midlothian, south of Edinburgh, is a Labor led council. When the Croydon case was raised by the Conservative minority group Midlothian Council, Negrini’s £440,000 gain when she quit her Croydon job in September 2020 was even mentioned.
“The public will be furious that this large deposit was given to a council that had run up massive debt at a time when our own communities, businesses and residents need every penny of support,” said group leader Peter Smaill. Midlothian Scottish Conservative. .
“We have seen instances in the past where other councils have been caught playing taxpayer roulette with these types of deposits. Further answers are urgently needed on what Midlothian knew or did not know, but should have known, about the already dire situation of Croydon Council.
“It is clearly in the public interest that there is full disclosure on this matter.”
The Scottish Council has created an FAQ page on its website to reassure its residents about depositing money with Croydon Council.
Midlothian councilors were assured by their council officials that their ‘investment’ in Croydon was secured through ‘its revenue stream’.
In early 2021, the government granted Croydon a £120m bailout, the largest in UK local authority history, which is being used to balance the books and secure repayment obligations.