Croydon Council is struggling under a £1.4bn historic debt burden and expects to have borrowed a total of £900m from the Government by 2030, according to its latest financial plans. The growing reliance on Exceptional Financial Support (EFS) borrowing, described by critics as akin to taking payday loans, has led the council to consider asking for a £500m debt write-off as a last resort.
Council Warns of 'Compounding Financial Trap'
In a strategy report, the council warns it is "difficult to see a route out of the EFS programme over the medium term that does not include some sort of Government intervention." The forecast comes as Croydon prepares to approve its 2027–30 financial strategy, which outlines plans to reduce reliance on EFS through budget savings and by tackling rising demand in high-cost services.
The Local Democracy Reporting Service (LDRS) previously reported that the council has relied on EFS to manage financial pressures. Rather than receiving direct Government funding, EFS allows the council to use capital resources to fund day-to-day spending. Croydon has been granted more than £500m through the scheme since 2021.
Experts Warn EFS Is Unsustainable
Earlier this year, the LDRS spoke to Prof Aileen Murphie, a Director of the National Audit Office since 2013, about the perils of EFS for local authorities. "EFS just allows you to capitalise your deficit, and then you pay it off over time," she told the LDRS. "If you do it year-on-year, you are not really dealing with the underlying issues."
According to a study by the Local Government Information Unit (LGiU), the number of councils receiving EFS across the country has risen sharply, with Croydon now among 52 councils to have accepted it since 2021. In the report, an unnamed chief executive of a London borough council said EFS is "like a payday loan."
Debt Burden Reaches £1.1bn Without Asset Backing
According to the financial strategy, Croydon's continued reliance on EFS has created what it describes as a "compounding financial trap." Total EFS borrowing is expected to reach £900m by 2030. The report states the council now carries around £1.1bn of "overhanging" debt, which is not backed by any physical assets. This includes £526m in EFS borrowing taken on to support day-to-day finances and a further £545m linked to failed commercial investments made under previous administrations.
The council says that without this historic debt, Croydon's debt levels would be similar to those of other London boroughs. These challenges have led the council to consider petitioning the Government for a historic £500m debt write-off.
Government Intervention Unlikely Until Council Exhausts Options
However, the council acknowledges that ministers are unlikely to consider the request until Croydon can demonstrate it has exhausted all options within its own control to address its financial position. The council's progress will also be overseen by Government-appointed commissioners, who will be in place until at least July 2027.
To reach financial stability, Croydon says it needs to find nearly £80m in savings to bring its highest-cost services in line with similar councils. Under the new financial strategy, due to be approved by Cabinet on Wednesday (July 29), the council intends to shift away from digital transformation projects and towards reducing spending in areas where demand is highest. The main focus will be on high-cost services including adult social care, children's services, temporary accommodation and special educational needs and disabilities (SEND). Officers are expected to bring detailed savings proposals to Cabinet this autumn.
Mayor Rules Out Another Exceptional Council Tax Hike
Elsewhere in the strategy, Executive Mayor Jason Perry again ruled out another exceptional council tax increase above the standard five per cent limit. Croydon residents already faced a 15 per cent rise in 2023, leaving the borough with the second-highest council tax in the capital.
Announcing the financial strategy last week, Mayor Perry said: "Returning the council to financial stability remains my key priority, and this strategy sets out the next phase of that work. Whilst transformation and efficiency remain important, we also need to address the demand pressures we see across some of our highest-cost services. Prevention is critical. By supporting residents earlier and reducing the need for more intensive interventions, we can improve outcomes for residents while making the best use of public money."
