The scale of corporate dysfunction at Croydon council prior to its collapse into bankruptcy two years ago was serious enough to warrant police investigation into potential misconduct in public office, according to an official report that has been kept under wraps for more than 18 months.
A leaked copy of the report reveals grave concerns about the behaviour of top councillors and officials at the then Labour-controlled authority, which became effectively insolvent in November 2020 after council spending, including on a string of risky commercial property investments, spun out of control.
Painting a picture of chaotic leadership at the council in the period before it fell into financial crisis, it reports allegations of lax governance, reckless decision making, disregard for democratic processes, bullying by senior managers, reward for failure, and a habit of ignoring inconvenient evidence.
Senior leaders appeared to have downplayed the emergence of problems in the council’s operational budgets and its £2bn investment portfolio, the report found, amid what it calls “unbridled optimism and seemingly an almost reckless disregard of the potential adverse consequences of these risks.”
The report concludes that senior leaders “failed to focus” on the council’s looming financial crisis, which had been exacerbated by the Covid pandemic: “It would appear that those with the biggest responsibilities and personally-held statutory duties let the organisation down.”
It adds: “Members are also requested to consider referring this initial investigatory report to the Metropolitan police for assessment of any further action being warranted in regard to the handling of public money and conduct in public office.” It is not believed that the matter has been referred to the police.
At the time, Croydon’s collapse caused shock waves as it became just the second council in two decades to go bust, although the blend of poor financial management, opaque decision-making and risky commercial investments has since surfaced in other crisis-hit councils such as Slough and Thurrock.
Croydon was forced to embark on one of the most dramatic programmes of cuts ever seen in local government after the disaster. It had to borrow £120m from the government to stay afloat, while selling off assets and adopting a “bare legal minimum” approach to service provision.
The council has been the subject of two published, largely technical reports examining what drove it to bankruptcy, but this report was commissioned to build a picture of the council’s internal culture, practices and behaviours to understand how it failed, and to advise whether any formal action should be taken against individuals.
The report, by a consultant and former local authority chief executive, Richard Penn, interviewed 64 people including chief officers, councillors, trade unionists and other staff. Penn said that while the accounts were necessarily subjective, taken together “a picture of organisational dysfunction at the most senior level of council emerges”.
The report’s findings were vigorously contested by former Croydon leader Tony Newman, who said it was “flawed” and a “politically motivated witch-hunt”. He denied misconduct, saying there was no evidence of wrongdoing, and insisted that he and senior colleagues “acted at all times with honesty and integrity”.
The council’s former cabinet member for finance, Simon Hall, called it an unreliable “pseudo-report” that ignored how a decade of austerity cuts left Croydon’s finances fatally weakened when the pandemic arrived. The council’s bankruptcy was not just about spending decisions but also “longer term funding shortfalls from central government which we were powerless to influence”, he said.
The leaked copy of the report was obtained by the local independent website Inside Croydon, which has investigated the crisis at the council, and its aftermath, in forensic detail.
It was ordered by Katherine Kerswell, the chief executive hired to turn the council around after its bankruptcy, and delivered in February 2021. The council has so far refused to publish it on the grounds that individuals it criticises should be given the chance to respond, and refused to comment on its contents.
The report recommends that councillors consider whether formal action should be taken against a small number of former senior members and officers for breach of councillor and officer codes of conduct. They are not named but are identifiable, and include Newman and Hall.
Croydon council said it was nearly two years into a renewal plan to embed a culture of “openness, honesty and transparency” into the organisation and revitalise internal controls and governance. Since May, the council has been led by the Tory-elected mayor, Jason Perry.