The government has launched a review into Croydon council after a scathing report by auditors over its repeated failure to manage its finances, particularly in relation to social care, despite repeated warnings.
Local government secretary Robert Jenrick today appointed a three-strong team to carry a rapid non-statutory review into Croydon’s finances and governance, after a report in the public interest by Grant Thornton found a “collective corporate blindness to both the seriousness of the financial position and the urgency with which actions needed to be taken”.
Jenrick said the situation in Croydon was “completely unacceptable” and that the authority had been “entirely irresponsible with their spending and investments”, adding that the government was “stepping in to get the situation under control”.
The review will probe what confidence Jenrick’s Ministry of Housing, Communities and Local Government can have in Croydon’s assessment of its financial position and plans to make savings, and will also examine the authority’s culture, governance and the quality of its services. Earlier this year, Croydon’s children’s services improved from ‘good’ from ‘inadequate’.
The review will report next month and may lead to statutory intervention by the government in the authority.
Failure to set appropriate social care budgets
Grant Thornton’s report found Croydon had failed to show it could manage costs or set appropriate budgets for either children’s or adult social care. The council accumulated “significant” overspends of £39.2m across children’s and adults’ services from 2017-18 to 2019-20 but, despite repeated warnings from auditors about its finances, “failed to deliver real savings” in either service.
This was despite accessing £50m in capital spending over this time to finance “transformation” expenditure on both services, designed to generate future ongoing savings, reduce demand or cut costs. However, Grant Thornton found that the fact that both budgets continued to grow during this time indicated the transformation funding was used inappropriately to finance overspends.
The report also said that the council’s reserves had been at an “unsustainably low level” for some years – a point Grant Thornton had raised in previous reports – having decreased every year for the past three years.
The council’s finance position has worsened under the impact of Covid-19, with a collective overspend of £46.7m recorded across adults’ and children’s services in April to June this year, at the start of the pandemic, some of which was offset by government funding.
‘Fragile finances exposed by Covid’
However, Grant Thornton stressed that fundamental problems predated the coronavirus: “The council’s fragile financial position and weak underlying arrangements have been ruthlessly exposed by the impact of the Covid-19 pandemic.
“Had the council implemented strong financial governance, responded promptly to our previous recommendations and built up reserves and addressed the overspends in children’s and adult social care, it would have been in a stronger position.”
It called on the council to address the underlying causes of its “significant” overspends within children’s services and adult social care, and “take effective action to manage both the demand and the resulting cost pressures”.
The report also raised specific concerns about the council’s financial management in relation to unaccompanied asylum-seeking children (UASC), of whom it has a large number as the home of the national asylum intake unit.
It said that council costs for unaccompanied children had exceeded Home Office funding – which is based on a per child per night rate – by £25.5m from 2017-18 up to the first quarter of 2020-21.
Grant Thornton said that the council had focused its efforts on lobbying the Home Office for an increase its rate, and that it needed to now examine how it could deliver services within the funding provided.
It added: “As the number of UASC continues to increase the council needs to consider where the capacity threshold is at which the service can no longer deliver safe care.”
New leader’s apology
Croydon, which has seen its leader and chief executive step down in recent weeks, has fully accepted the report’s findings.
Newly-appointed leader Hamida Ali promised “swift and decisive action to stabilise the council’s finances and governance”, adding: “These problems have deep roots, but I am sorry we got things wrong and I want to reassure our residents, staff and partners that my absolute priority as the council’s newly-elected leader is to put this right.
“While a decade of austerity and the Covid-19 crisis have had a major impact on our finances they do not excuse the issues this report has laid bare.”
In September, Croydon said it faced an overspend of £50.3m for 2020-21 – £42m of which was attributed to Covid-19 – while its reserves were just £10.2m.
The council then agreed recommended savings of £27.9m before the end of the financial year. However, it said this left a £22.4m hole and there was “insufficient time remaining in this financial year for the budget to be fully balanced. It is seeking a loan from the government to balance its budget – one of the factors triggering Jenrick’s review – and said it would also bring forward an action plan setting out how it would “significantly strengthen its financial resilience, decision-making and governance and fully address the findings of the report”.
Savings and job losses
Of the £27.9m in savings, Croydon has planned to make £1.1m in savings from children’s services and £0.5m from adults’ services. In children’s services, this includes “savings from placement costs and a review of the family safeguarding function”. In adult social care, the reductions include reviewing care packages to reduce spending on cleaning and shopping services and funding more care through direct payments.
A £2m saving is anticipated from staffing cuts by reducing headcount by 15%, or over 400 posts. To start with there was risk of 175 compulsory redundancies across the council, but Croydon said this has reduced to 60, with other reductions made through redeployment and voluntary severance.
Within early help and children’s social care, there is due to be a 19.35 full-time equivalent (FTE) reduction in staff, with nine on notice of redundancy, none of whom are qualified social workers. In adult social care, the reduction will be 13.1 FTE staff with no compulsory redundancies. The council said it was seeking to find ways to redeploy staff given redundancy during their notice periods.