Council tax in Croydon could increase by more than five per cent next year as the authority works to bring in more cash to address a £130 million hole in the budget.

The authority was forced to issue a bankruptcy notice on Tuesday morning, admitting it will not be able to balance its budget in the next financial year.

Along with cuts at the council and selling off assets, the council needs support from the government.

In the Section 114 notice issued by Jane West, corporate director of resources, she admits the council may need to increase council tax beyond five per cent.

This would be a huge increase to council taxpayers in the borough and would mean average bills would go above £2,000 for the first time.

The new five per cent limit was only introduced last week in the chancellor’s autumn statement.

Until now, local authorities have been only been able to increase council tax by three per cent without a referendum.

The notice said the council needs “extraordinary support” more than a bailout loan which could include writing off all or some of the council’s £1.5 billion debt, permission to pay debt off over a longer period or at a lower interest rate or permission to “increase the council tax beyond the referendum cap”.

Mayor of Croydon, Jason Perry, said: “It is going to take time to work our way through this.

"Unfortunately people are going to see some services come to an end and we might see a council tax rise, we might have to go beyond the five per cent.

“We are determined to get a sustainable local council here in Croydon, that delivers key services that we need.

"We have fantastic staff and a great community we will be able to work through this.”

Over the coming months, Croydon Council will be in discussions with central government win the lead up to it setting council tax and the 2023/24 budget in March.

Leader of the Labour opposition Councillor Stuart King said the council should be properly funded by the government rather than having to put up council tax.

He said: “The Conservatives should not be pushing up taxes for residents during a cost-of-living crisis.

"Chris Philp’s catastrophic handling of our national economy has put a £30m black hole in the council’s budget.

"Instead of making residents pay, Mayor Perry should be calling on the government to ensure Croydon is properly funded.”