Croydon Council’s Finances: An Analysis

By - Thursday 21st February, 2013

Conservative GLA Member and Councillor Steve O’Connell explains why he thinks the council’s financial situation needs to change

The council – and Croydon councillors – have taken some stick over service cuts in recent weeks as we move towards setting the budget for the next financial year. Why? Because, with the continuing economic pressures on the economy, we have seen our income fall significantly whilst many demand pressures are growing and this inevitably means cuts in some services.

Photo by SouthEastern Star

So what is actually happening to the council’s income? About half the council’s income comes from Government grants and this will fall by half (in real terms) over the period 2010-2015, as the government seeks to reduce public spending. Whatever their politics, most people accept that the current coalition government is trying to deal with an economic catastrophe which is not of its making. For many years it has been clear that there are structural problems in the economy: public spending inexorably rose in the first decade of the 21st Century, both when tax revenues were strong and when they were not. This is what is known as the ‘structural deficit’. In essence it means that the country has become accustomed to spending more than it earns, every day. When, in 2008, massive bail-outs to the banks were needed, this just added to the problem. This piled another dollop of debt onto an existing debt mountain, to which the structural deficit adds every day.

Since taking office the government has reduced the rate at which the debt mountain is growing – but that’s all it has done. Some people assume that the austerity measures we are all enduring mean that national debt is falling, but that’s actually not the case. All that the current round of pain has done is to reduce the rate of debt growth.

So, depressing though it is, I cannot see any way that in the medium term we are going to see an easing on the downward pressure in central government support for councils.

Nobody really wants to put up council tax: we know that everyone is feeling the pinch at the moment

The balance of our income comes from council tax: with this frozen for much of that period, but inflation still eroding the spending power, this portion of our income is also falling in real terms. This means we have to make significant cutbacks to be able to set a balanced budget. Partly because of the recession, and partly because of the effect of a rising population of both older residents and children, expenditure is rising on many social care services which we are required by law to provide. Even if we manage these services ever more efficiently, we still have rising costs and a declining income to deal with. Every saving goes a little way towards correcting that and there is really no area of the council’s expenditure which is exempt from having to make savings at this time.

The government has, not unreasonably, put a lot of pressure on councils not to put up council tax in the last three years. Nobody really wants to put up the tax: we know that everyone is feeling the pinch at the moment. So in the last three budgets it has offered ‘deals’ for councils who are able to freeze council tax. Effectively it has said that if the council freezes, it will provide the equivalent of a small rise either for that year alone or for several years. However, unlike an actual council tax rise where the extra money raised by the increase is taken by the council every year thereafter, these government schemes have been time-limited, which means that at the end of it you have to put up council tax just to stand still. And the more freezes you take, the worse the problem at the end.

Last year’s freeze, for example, offered us the equivalent of a 2.5% rise but only for one year. So in setting this year’s budget, we would have to put up tax by 2.5% just to stand still and get the same income!

This is why, with great regret, Croydon has been unable to take the freeze this year. It would make it impossible to balance the budget in future years when the government subsidy ran out. So, in Croydon, we intend to raise Council Tax by 1.2% including the London Mayor’s Precept. That’s about half the rate of inflation and amounts to 34p per week for a band D property.

The secretary of state is not happy with the many councils that have taken this line this year. I can understand why, and I can also understand why some residents, for whom the intricacies of local government finance are a mystery, also cannot understand why we appear to be turning down free money.

If we had Lambeth’s grant we could cut council tax by 94%

Croydon would be in a completely different position if the Barnett formula, which distributes finance between different regions, was fairer. The formula is named after Joel Barnett, who devised it in the late 1970s whilst Chief Secretary to the Treasury, as a way of allocating reduced (or indeed additional) finance based on population (rather than need). It was intended as a short-term solution to minor Cabinet disputes in the run-up to the planned devolution of 1979. However, it has been maintained by successive governments and population migration has rendered it completely meaningless.

So the current variant of the Barnett formula penalizes England relative to Scotland and Wales and its trickle down effect gives some London boroughs massive supplements to their income compared to Croydon. For example the adjoining borough of Lambeth receives £713 per head of population, whereas Croydon gets a measly £332 – well under half. Yet the population of the north of Croydon has generally higher deprivation now than that of Lambeth. If we had Lambeth’s grant we would have an additional income of £140m and therefore council tax could be cut by 94%!

Whilst we do have to provide a library service, it is not defined in law how many branches we need to provide

So some local authorities are finding that, whilst their income from government is falling, they still have sufficient money to provide the services people want without massive cuts. Indeed Southwark have introduced free school meals for all primary school children, something we can only dream about. Is that because they are much better run than us? No, it’s that they too get massively more government funding per head than we do. So I can see the Secretary of State’s point of view: some boroughs, with generous government income can afford to take freeze after freeze, and if they don’t it is right that they should be criticised. However, Croydon is not one of those: we would love to be able to freeze again this year, but it simply can’t be done.

What has also been clear is that many of the services which are largely discretionary – that is to say we can choose to what extent we provide them – are also ones which residents value and don’t want to see cut. Libraries are a good example: whilst we do have to provide a library service, it is not defined in law how many branches we need to provide. Some councils have halved their networks, but when we consulted on reducing our network, the message came back loud and clear that this was not desired. So we have instead opted for a solution which saves some money but keeps all branches open.

Photo by SouthEastern Star

So whilst I realise that some residents will be disappointed that we are not taking the freeze this year, I hope they will understand that is a genuine desire to protect the key services we all depend on which motivates this. And it is also true to say that the total increase over four years in Croydon has been 2% (0.8% in 2009/10 and 1.2% in 2013/14). Compared to the rampant inflation in other charges – utility bills and food being good examples – this is effectively a substantial real-terms cut. It also compares extremely favourably with the 27% increase in tax charged in just one year (2003/4) by the then council administration in Croydon. So we are sorry we have had to do this, but hope that people will understand the need and support the modest increase.

Steve O'Connell

Steve O'Connell

Steve O'Connell lives in Kenley with Michele, son Ben, an assortment of dogs and Louie the Cat. He has been a Conservative Councillor in Kenley for 11 years, and the GLA Member for Croydon and Sutton since 2008.

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  • Paul Williams

    This is hugely misinformed; talk about mixing apples, pears, oranges, bananas. The Barnett Formula allocates money to Scotland, Wales & NI based on spending in England. It does NOT set spending levels for England – the overall fiscal aggregates do that – and it does NOT set the formula for local government. The local government settlement is determined differently. Clearly the author knows NOTHING about how public spending is allocated in the UK.

    • Elizabeth

      “Clearly the author knows NOTHING about how public spending is allocated in the UK. ” More than just a little worrying when the author is local Croydon councillor and GLA member Steve O’Connell.

    • Paul Williams

      Would love to see how the author justifies this sorry state of affairs: Croydon Council is persistently poor at collecting Council Tax. Not only has it never met any of the collection targets it set itself but it also lags far behind other Outer London Boroughs and English LAs in the percentage of total Council Tax actually collected.

      And, when you look at this, please remember that during this period the Cabinet awarded themselves large allowances and gave the CEO/CFO annual bonuses running into 5 figures per annum. I shall add those figures to this chart tomorrow.

      Now does that put a slightly different shine on the “analysis” provided by the author?

    • Kake

      Thank you for this correction, Paul. I eagerly await the response of the article author!

      PS I wish there were people who could make corrections like this when I get things wrong in my own articles :)

      • Paul Williams

        Thank you for these kind words; not sure everyone agrees though.

        I wrote a rather long (understatement and frankly rather niche (euphemism for dull)!) paper some years ago on public spending processes, decisions, formula etc, in the UK: their objectives; how they varied; how they differed; and how they compared to other OECD and non-OECD countries. And, the first draft was ripped to shred by peer review, including withering input by an American Academic… I therefore feel relatively confident about this since I’ve really been under the cosh!

        • Kake

          It sounds from Tim Pollard’s response below that the issue is mainly one of unclear writing. The article definitely seems to me to be implying that the Bartlett formula is the reason for the within-London funding discrepancies — one has to read your and Tim’s comments to realise that this isn’t so!

          • Paul Williams

            Exactly. The real reason for this funding discrepancy is the local government formula not Barnett.

            It is also a little duplicitious for O’Connell not to note that the current government – which his party is the largest partners – hasn’t changed that formula. My reading of that decision is that they cannot believe there is anything wrong with it.

            Which then means the question is how has the Council prioritised the actions/decisions it has control of? This covers things like:

            (1) have they optimised the current revenue base (ie collected all the council tax, parking fees, etc)? In my view, the answer is no if you look at the actual Council Tax Collection rates. They’ve never hit their target, yet they’ve rewarded the Senior Management Team with 5 figure bonuses (in nearly every year)….

            (2) could they have made more choices to increase the revenue base (ie increase taxes)? They have done so on parking and other (less visible) fees and charges but it has not done so on Council Tax (to date). That is a political choice and reflects their priorities. This is understandable and right (even if you don’t agree)

            (3) have they made the right decisions on how they spend their money, ie have they really pursued a value for money approach? Again this is about choices but I would argue that if things are that tight, then the decision to build a £100+mn shiny new building – using today’s money with expectation (probably hope) that tomorrow’s sales will pay it off – and spending £24mn refurbishing the Fairfield Halls are interesting choices. Again, that is their choice – and politics is about choices and priorities – but they cannot say that they have not made their choices and they should be prepared to stand by them. They should also be honest about them.

            The O’Connell article basically said it is those beastly people in Central Government – which it may or may not be – but (a) those people are from their party and (b) they’ve made choices on how much they want to maximise the revenue base and on allocating money. That is their playing field and they’ve decided how to arrange the lego (mixing metaphors).

            As my (more polite) American friends would say: he should grow a backbone!

  • Paul Williams

    Perhaps the author would also like to enlighten us how much less our council tax would be if:
    1. We had NOT proceeded with the CURV; and
    2. We had NOT decided to spend £24m refurbishing Fairfield Halls

  • Brendan Walsh

    I’m not a Labour supporter but I’m guessing they were also sorry they had to increase Council Tax by 27% when they did. As you say yourself, nobody wants to do that. With the lack of spending per head that you refer to, wouldn’t it have been better to try to increase Council Tax in line with inflation consistently (talking about all parties here) rather than these freezes and cuts to services that do more damage in the long term. The fact you cannot make ends meet now with the money you currently have available just shows the Labour were right to make that increase when they did.
    The Conservatives are currently in Government. No time like the present to do something about the Barnett formula.

  • Liz Sheppard-Jones

    Croydon should clearly be making a lot more fuss about the injustice of the Barnett formula.

    In my opinion no apology need be made for taxation, which is a public good. My personal choice would be to live in a high-tax economy (including council tax) and to receive a high standard of public services in return. I’m not holding my breath.

    Cuts in public services are causing widespread harm and suffering. Since the only achievement of these cuts thus far is a reduction in the rate at which the deficit is increasing, I question the entire set of assumptions on which the policy is founded.

    • Kake

      Agreed. I’m glad to see council tax going up.

  • Paul Williams

    Why does the author also not acknowledge how poor the council is on collecting Council Tax? Here are a couple of facts:
    (1) Croydon has never met its Council Tax Collection target. However, the Cabinet has increased the allowances they award themselves and have also awarded the CEO/CFO bonuses in every year. What are they giving these allowances for?
    (2) In 2011/12 – as in every year since 2006/07 – the Croydon Council’s Council Tax Collection Rate, ie the amount they collected of the current expected tax base, was below the average for Outer London Boroughs and way below the average for English LAs. They’ve made no real improvement relative to other boroughs. Why is that? Why don’t they invest in that?
    I shall post a graphic later which proves just how poor the council are on collecting current Council Tax.
    If they’d done their job on collection and not wasted money on Fairfield Halls and CURV, migh they have been able to reduce services less and reduced Council Tax?

    • Paul Williams

      Here’s Croydon Council’s poor Council Tax Collection Rate. Sure it is going up but so is the average for Outer London Boroughs…

  • Anne Giles

    Excellent article, Steve.

  • Tim Pollard

    I felt the need to comment on a few of Mr William’s observations on Steve’s article.

    Firstly, on the Barnett formula, Steve doesn’t actually say that the Barnett formula itself splits the available funding for councils in England, as Mr William’s says he does. The point I think he was trying to make is that at every level of how funding is split there is unfairness, from the top down. Mr William’s acknowledges that the highest level of these formulae, the Barnett formula does indeed penalise England relative to Wales and Scotland. There are indeed other formulae which split England’s council-support funds down between regions and boroughs.

    The last major overhaul of these was, as far as I am aware, in 2002. The result of this was that outer London was funded much less generously than inner London and Croydon was bracketed with the apparently least needy boroughs in outer London. The net result of unfairness compounding more unfairness is that Croydon’s share of the shrinking cake is inadequate for its current needs. In the end, whether you subscribe to Steve’s analysis or not, the facts of Lambeth’s grant per head compared to Croydon’s are pretty undeniable.

    I don’t think there was any anti-Croydon politics in the decision to implement the 2002/3 formula. The government, at the time, was Labour and so was the council. However, many disinterested observers believe that the purpose behind the last review was to refocus resources to the northern England metropolitans at the expense of the south. Croydon was, if you like, just collateral damage. Or a victim of friendly fire perhaps.

    Finally a few critiques of the detail in some of Mr William’s other allegations. He asks what the council tax would have been if the council had not taken the decision to set up its Urban Regeneration Vehicle to both help regenerate the centre of Croydon and enable the council to move from it’s dilapidated Taberner House building to the new Bernard Weatherill House. He links into that the decision to progressively refurbish Fairfield Hall. The answer is nothing – it would have negligible effect in the next financial year, or the one after, come to that.

    Why is that? It is because the URV will redevelop a number of sites that we can vacate as a result of moving into Bernard Weatherill House. It uses the profits from these to fund the new building and the council tax payer can then benefit from the significantly reduced running costs we will have once we’re out of Taberner House. These reduced running costs include the much greater energy efficiency, the lack of need to pour money into the ageing infrastructure of the old building and the much greater workforce efficiency we will get from operating in a building designed for 21st century working practices rather than those from the sixties, which Taberner House was designed for.

    And as to the Fairfield investment, the fact is that we are investing capital over a six or seven year period, with the intention of keeping the Fairfield going. It is fifty year old building, with fifty year old wiring, air conditioning, lifts and so on. If we don’t invest it will close. Is that what we want for Croydon?

    On cabinet allowances, in the seven years the Conservatives have been in control the allowances have been effectively frozen. Under Labour they tripled.

    On senior management pay Croydon is not a particularly generous payer. A couple of years ago my Director of Children’s services moved on after two years in Croydon. He got a 50% pay increase by moving to a Shire authority. a lll I would say on this is that it is difficult to attract and keep good staff if you’re massively behind the going rate for a job.

    • Paul Williams

      I agree with differences in public spending; I wouldn’t say unfairness since the ConDem government has decided its priorities and unless you disagree with them – do you or do you not? – you just admit it is priorities. And, after all, that is what politics is about, isn’t it? It is also worth noting that the ConDem Government has not changed the LG formula so they cannot believe it is that bad….
      On CURV, so you can assure me that there’s be no impact on current spending, ie we’ve spent none of the Council’s current revenue on this project? Zero cost. And, if you have, how much have you spent and when do you explain do get that return (I note that none of the other projects have started yet…)? And, finally, if that is the case, why will you not show us the details? I mean if this really is such a good deal then you should be overjoyed in sharing with the local electorate, shouldn’t you?
      Fairfield is also all about priorities; I wouldn’t spend that much money on that, I’d prefer to spend it on things which will have an immediate impact on local growth/employment. So, no it is not a priority in my books but it clearly is in yours. That is something for you to defend to the electorate and if they agree, a great call by you! (Although, thinking out aloud, it would be interesting to see if your administration were of the same view of this key priority, if a Cabinet member wasn’t on the Board as well…)
      I’m sorry if I completely disagree with you on salaries – it’ll be interesting to see what the CEO is paid when he moves to DH (a pay cut I assume) – and we can come back to this….
      …which leads me to CTX collection. No comment? And, why did you give the CEO/CFO bonuses in almost all of these years if they failed to meet their own targets for CTX collection. Rewarding success or not?

  • Christian Wilcox

    Going up by 34p a week for The Wealthy.

    For The Poor it’s going up by £3-4 per week. Jobseekers, The Disabled, we’re all facing Council Tax Rises as our Council Tax Benefit is being cut.

    So much as it is rises for all, surprise surprise The Poor get the biggest rise.

    Typical Tory dirty tricks.

    • Kake

      Ugh, that’s an appalling detail that seems to have got left out of the reportage! Do you have a linkable source for these figures? I did a google but all I could find was this page which suggests the lower the band, the lower the increase. (Or do you mean that the relative increase is £3–4 after benefit cuts are taken into consideration?)

  • Robert Ward

    Thanks to Mr. O’Connell for his article and for those of the
    comments that are constructive. I ignored the yah boo stuff that seems endemic
    in Croydon Council activities.

    So in summary, Croydon does badly compared to other areas
    due to arcane formulae that governments of all stripes have declined to change.
    This is not because these formulae are fair or good, but because any change is
    just too hard, politically costly, would take too long and no party sees
    anything other than a bloody fight, probably ending in recrimination and

    So we are where we are. The big decision seems to be, using
    the example of libraries, that to reduce expenditure you either try and keep
    everything going in some form but seek cheaper ways of doing it, or you choose
    to keep some things and close others. Croydon Council have chosen the former. I
    am ok with that, although I would also be ok with the alternative. It’s all
    about implementation.

    The numbers that surprise me are the poor performance quoted
    by Mr. Williams on Council Tax collection rates. Most of the other things he
    quotes are the usual political yah boo stuff but doing something about this
    seems to be a no brainer. Action on this may be costly in the short term, and had
    it been happening I suspect would find Mr. Williams bitterly opposing it
    because it ‘demonises the poor’. Even so, others have done it, why not Croydon?
    I pay my Council Tax why shouldn’t everyone else? Maybe I am wrong, can we perhaps
    put Mr. Williams in charge of making this happen?