Croydon Council has asked the government for a £540m bailout after a string of disastrous property investments left it mired in debt.
The Conservative-controlled council owes £1.6bn, almost £320m of which is made up of negative equity on poor investments, including a local shopping centre and a hotel.
Three months ago, the council declared itself bankrupt for the third time in two years by issuing a section 114 notice to indicate that it could not finance its spending. The trigger was a forecast showing the council would require £130m of spending cuts in the coming financial year – about 43% of its annual expenditure.
The council has now asked ministers to write off £540m of its debt, stating that without this local services will have to be “hollowed out”, putting “vulnerable people at risk”.
The council has paid nearly £50m in interest on its debt this financial year and has warned that the higher cost of borrowing means this will rise to £67m next year without government intervention.
If granted, the bailout could trigger similar requests from other cash-strapped councils. Thurrock Council in Essex, for example, is facing a £500m black hole after a series of investments went sour.
