Havering Council’s ‘borrow to survive bid’.

‘If we don’t sort this out in some way the end of the road will soon be upon us.’

Local democracy reporter Josh Mellor today writes on Havering Council’s desperate bid to to avoid declaring itself bankrupt.

Havering Council will ask the government for permission to take out a loan in a bid to bridge a huge gap in its finances.

The council is predicting a £31million budget shortfall from April next year, a gap that it must close in order to avoid declaring itself effectively bankrupt.

To avoid this, the council has set out £12m in proposed cuts and will also formally ask the government for special permission to borrow money for its day-to-day services.

The permission, known as a “capitalisation direction”, is an unusual step that would waive strict financial rules around what councils can use borrowed money for.

Council leader Ray Morgon said the unusual step may be needed to “avoid” having to issue a Section 114 notice because the council cannot balance its budget.

According to the Local Government Information Unit, a section 114 notice is “generally seen as demonstrating that a council faces bankruptcy unless it quickly gets its finances in order”.

Today (9th November), the council announced a consultation on next year’s “make or break budget”.

The decision to ask for a capitalisation direction from the government was approved by Havering’s cabinet yesterday (9th November).

The meeting heard that the council is facing an “unsustainable” demand from social care, amidst high inflation and following a decade of austerity.

In addition, councillors criticised the government’s use of “woefully” outdated funding formula to calculate the borough’s needs.

Cabinet member planning and regeneration Graham Williamson called the capitalisation direction “borrowing to kick the can down the road”.

He added: “If we don’t sort this out in some way the end of the road will soon be upon us.”

Speaking to the Local Democracy Reporting Service after the meeting, Cllr Morgon said: “Normally you do not borrow money [to pay for day-to-day services].

“On this occasion it would be used to give a balanced budget to avoid issuing a section 114 notice.

“The effect of that would be that government commissioners come in and take over and determine what you spend, what cuts you make et cetera.

“Some of the cuts and savings, we’re making anyway, but if the commissioners come along, I suspect residents would be even more unhappy.

“[Commissioners] look at it like they’re running a business and need to cut costs or increase charges.

“We don’t want to go down that line, we want to provide residents with as much as we possibly can provide with the resources we can provide – if we need to, we will take out a loan to do that.”

He added that “hopefully” the council will not need to borrow the money.

Since 2020, the government has given sixteen councils permission to borrow money to cover their costs.

Some, such as Slough, Croydon and Thurrock had already issued section 114 notices in principle have permission to borrow hundreds of millions of pounds over several years.

Other councils have avoided issuing the notice and later withdrew their request.

The government says it only provides support on an “exceptional basis”, on the condition that each council agrees to an external assurance review on their financial position.

The loan must be repaid within twenty years, with interest.

Stay up to date with all of our latest updates and content by following us on our social media accounts!

We have created community pages where we will share our up-to-date stories happening in the area. Add the area closest to where you live.

Support Local Journalism
We at The Havering Daily appreciate your support of quality journalism. Your generous donation, no matter the size, allows us to continue bringing unbiased and informative news to the community. Your contribution helps us maintain our independence and allows us to continue providing high-quality journalism. Thank you for valuing the work we do and for supporting our mission

Thank you