Croydon Council could soon be given a huge £224 million loan by government as it struggles to get back on a stable financial footing. 

The council understands the government is minded to issue the loans, known as capitalisation directions, to the beleaguered authority. 

It comes after the council was forced to issue a Section 114 notice, declaring effective bankruptcy, at the end of 2022, for the third time in just two years.

The authority admitted it could not balance its budget for 2023/24, a legal requirement, without the government stepping in.

Croydon Council has now asked the government for £161.6m to deal with historic financial issues and another £63m to plug the budget gap in 2023/24.

The loans will not be formally confirmed until the end of February and the council also hopes government support will include writing off some of the council’s other debts. 

The authority already has existing debts of £1.6billion which cost £47m a year to pay back and keep up with interest repayments. 

The government loans would significantly increase the amount the council has to pay each year.

Along with refinancing £300m of existing short term loans, likely with higher interest rates, the council would be spending around £67m a year on debt repayment. 

Croydon Mayor Jason Perry said: “We are looking at around £50 million a year going up to £67 million.

“We are in catch 22. 17 per cent of our budget is going on servicing debt thatcher than providing services. The amount we have to provide services is getting smaller every year.”

The council will also be asking the government to write off £540 million of its debt.

If approved, this would reduce Croydon’s debt by £38 million a year.

This comes after the council was given special permission to increase council tax by 15 per cent this April – the highest in the country. This is expected to bring in an additional £22m for Croydon Council. 

Councillor Jason Cummings, cabinet member for finance, said even with government support it would take at least two years to achieve financial stability.

He added: “It is going to be an ongoing process if we don’t get a deal from government it can’t be done. If they do not do something the council is not sustainable.”

The council’s budget is due to be discussed at a cabinet meeting on Wednesday, February 22, before going to full council on March 1.