Croydon Council has risked over £145million of taxpayers money on a highly embarassing bailout of its two highest profile business and regeneration projects.

Secret documents seen by the Croydon Guardian show council leaders plan to borrow £145.6m of Government money to support Croydon Council’s Urban Regeneration Vehicle (CCURV) a partnership with John Laing to regenerate four council-owned sites.

John Laing is set to redevelop the buildings, including new council headquarters, with the profits split evenly with the council.

However, when the company was faced with an extra £94m in long term interest rates and fees on the loans they planned to take out, the council was forced to step in and borrow Government funds to finance the construction of the buildings.

The plans were ratified at a cabinet meeting held behind closed doors on Monday night.

The Croydon Guardian has also learned the council has had to step in and bail out the Croydon Economic Development Company (CEDC), giving it almost £1m after the firm admitted financial difficulties.

HM Revenue and Customs is talking to the council and CEDC over £300,000 VAT exemptions being incorrectly claimed.

The CEDC was set up by the council just a year ago to handle economic regeneration in the borough.

EU “state aid” rules on providing money to private firms means the council was obliged to take CEDC under its wing to solve its financial problems – but it is claimed the same rules mean its decision to use a Government loan to help fund its new headquarters could be illegal.

When asked to comment on the leaked documents, Councillor Tony Newman, leader of the Labour group, called for a full public inquiry into the council’s funding of the two programmes, describing it as a “litany of failures”.

He said: “Labour councillors believe this disgraceful scheme is both potentially illegal under European State Aid funding, and morally wrong in tough economic times, when the council should be concentrating on improving its many failing services.”

Steve O’Connell, lead member for regeneration at Croydon Council, said the loan from the Public Works Loan Board (PLWB) was a “good deal for the taxpayers of Croydon”, and confirmed the funding had been agreed by the Government.

He said: “The council has to pay for it one way or the other. We don’t borrow much money, and I would actually like to borrow more money from the PWLB for regeneration projects.

“It’s well within our borrowing limits, and we can still borrow for other projects.”

Croydon Economic Development Company bailout

The Croydon Economic Development Company (CEDC) needs more than £900,000 this year, and faces a possible investigation by HM Revenue and Customs (HMRC) officers over £300,000 of VAT exemption claims.

The company is also looking at whether it is liable to cover £100,000 of Pay As You Earn contributions, which hinges on whether a number of consultants employed by the firm were staff workers or freelance.

HMRC has met with the council and CEDC about the issues.

Although financial details of these decisions have not been released to the public, the Croydon Guardian understands the CEDC inherited a £179,000 deficit when it took over Croydon Business in March.

It incurred another £500,000 in costs after deciding to move out of its old Park House premises because of a rent increase.

The company, which bills itself as “providing leadership and expertise to establish Croydon as an economic centre for the capital”, needed a £161,000 fund injection from the council to “meet its immediate commitments”.

The council has had to supply this to the company from its own funds and the rest will come from Government grants.

Three councillors have now been placed on the CEDC board to help manage the company.

Councillor Steve O’Connell, cabinet member for regeneration, said the funding would be the limit of the council’s support for the company.

He said: “It’s not going to cost the council anything. We have Government funding which is there to provide funding for economic development in the town.

“It’s a perfectly legitimate use to use that fund to support the CEDC – it’s like a business start-up situation.

“These regeneration companies are always going to need some statutory support, but this will be my limit of support for them. I would be very uncomfortable if the CEDC came back and said it needed more funding.”

Labour opposition leader Tony Newman said it was disgraceful Croydon Business was discovered to be in great financial difficulties just 10 weeks after being taken over by CEDC But Max Menon, finance director of Allders in Croydon, backed the CEDC for its work helping local business, calling it “fundamental to the future of Croydon”.

CEDC chairman Barry Rourke said: “The CEDC board is committed to driving the improvement of Croydon’s economic prosperity over the foreseeable future.

“We are grateful for the swift actions of the council which enables us to receive the necessary support.

“It is reassuring that the council has said it will not let these fresh arrangements impede the work of the CEDC and its board.”

Croydon Council Urban Regeneration Vehicle

The legality of Croydon Council borrowing over £145m to fund construction of its new headquarters in the town centre has been called into question by the Labour opposition.

A new Public Service Delivery Hub to replace the ageing Taberner House is part of regeneration plans for Croydon Council’s Urban Regeneration Vehicle (CCURV), the partnership with developer John Laing.

The council was forced to borrow funds from the Public Works Loan Board (PWLB) to pay for the construction, after long term interest rate hikes and fees caused by the credit crunch meant a regular bank loan would cost an extra £94m.

But EU State Aid laws place strict rules on local authorities giving money to private companies.

A spokesman for Croydon Council said it was satisfied it was acting fully within the EU laws governing state aid.

He said: “Whilst John Laing will facilitate the development of the private sector hub by acting as the development manager, it is the council, its employees and the residents of Croydon that will benefit by the delivery of new improved civic office facilities at the heart of Croydon.

“The money raised through prudential borrowing will not be given to John Laing but will fund the construction of these facilities which will ultimately be owned by the council.”

Interest payments on the Government loan will begin when the first £30m is borrowed in 2010, with the rest of the loan spread over the following three years.

Coun Tony Newman, Labour group leader, called for a public inquiry into the decision.

He said: “It’s now clear for the Tory council to build this council HQ that nobody wants, Croydon taxpayers are going to foot the bill to the tune of over £150m, as well as handing over millions of pounds of public assets to the council’s private development friends.

“Labour councillors believe this disgraceful scheme is both potentially illegal under European State Aid funding, and morally wrong in tough economic times, when the council should be concentrating on improving its many failing services.”

But council leader Mike Fisher said: “We are looking to recoup money from John Laing, as they are now taking on some of the risk (because of the loan). There is a risk but it’s an absolute minimum.

“You don’t get many schemes that are as nailed-on as this one.”

Coun Steve O’Connell, lead member for regeneration at Croydon Council, said the loan had been given the go-ahead by the PLWB, adding it was a “good deal for the taxpayers of Croydon.

He said: “I’m absolutely committed, and the financial advice I’ve had from officers is it’s perfectly correct to do so.

“We don’t borrow much money and I would actually like to borrow more money from the PWLB for regeneration projects.

“It’s well within our borrowing limits.

“We were always going to pay for this – we are the driving force in this, and we’re not going to cut a deal which is not a good deal for Croydon.”

PWLB secretary Mark Frankel said: “We lend on the assumption that the borrower is acting legally.

“Local authorities don’t specify why they are borrowing from us.”

Matthew Elliott, chief executive of the TaxPayers’ Alliance, said: “It is worrying that the council are racking up such a massive debt for which taxpayers will have to bear the cost.

“If the financial crisis teaches us anything it should be that getting hugely in debt is not a good idea.

“People already pay more than enough tax without the council committing them to pay even greater sums in future.”

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