Croydon LBC has asked Government to write off £540m of its debt in 2023-24 to ‘restore financial sustainability’.

The move would reduce the annual cost of the council’s debt by £38m.

It comes amid estimates that by 2025-26 the external interest payable on Croydon’s debt and the sum to be put aside for revenue debt repayment would be £65.2m - about 19% of the council’s net budget requirement.

Most other local authorities have debt revenue financing costs in the range of between 5% and 10%.

Croydon has already been granted capitalisation directions of £150m from 2019-20 to 2023-24.

It is now expecting confirmation by the end of this month that the Government will approve an extra £63m of capitalisation to deal with the remaining budget gap in 2023-24 and an additional direction of up to £161.6m ‘in relation to the outstanding legacy issues facing the council’.

Earlier this month Croydon was given Government dispensation to increase council tax by 15%, which would bring in an extra £22m per year.

A report to a meeting of Croydon’s scrutiny and overview committee yesterday read: ‘The council is making the case to central Government that the extraordinary financial support model they have in place with its sole reliance on capitalisation directions has hindered Croydon’s return to financial sustainability.

‘The debt repayment burden this generates requires the council to deliver a disproportionately high and unsustainable level of savings in order to fund the annual cost of repayment.

‘Such a write-off would re-establish debt on a par with other councils, deliver an estimated saving of £38m per annum in debt financing costs and would mean the council becomes financially sustainable.’

This article was originally published by The MJ (£).