Havering Council's leader said he is "hopeful" the government will accept the authority's request for a £54million loan as it bids to stave off the threat of declaring itself effectively bankrupt.

In a briefing held on Wednesday (January 31), Ray Morgon said his “gut feeling” is that the government will approve the council's bid for the loan.

The loan is the council’s only hope of avoiding declaring itself effectively bankrupt by the start of March, according to Cllr Morgon.

A loan would cover an overspend of £21m this year and a predicted budget gap of £31m next year.

Cllr Morgon told the local media that local government minister Simon Hoare “fully appreciated” Havering’s situation at a recent face-to-face meeting.

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He added: “[The minister] certainly was sympathetic to our situation and conversations with the Department for Levelling Up, Housing and Communities (DLUHC) have gone along similar lines.

“I’m hopeful, but I would put that down to a gut feeling.”

However, Cllr Morgon said government confirmation could go “right up to the wire”, so an extra meeting of all Havering’s councillors has been scheduled on March 6, five days before the hard deadline on March 11.

The loan is understood to need approval from both Michael Gove, secretary of state for the DLUHC, and chancellor Jeremy Hunt.

With the loan – known as a capitalisation direction – government-appointed officials could take over and force through large increases in council tax.

Havering Council blames its financial crisis on what it calls “years of systemic underfunding” which have seen government funding slashed since 2010.

It also says government funding is simply not enough to cover soaring costs of social care and preventing homelessness.

Kathy Freeman, the council’s strategic director of resources, said: “As a resident of the borough, it’s with a really heavy heart that I’m having to put forward this recommendation, adding to the debt on the balance sheet – it’s really difficult.”

Councils cannot declare themselves bankrupt but must formally issue a section 114 notice if they cannot balance their books.

This would halt all new spending commitments and could result in government commissioners taking control of the council from its democratically-elected leaders.

Other councils which have issued such bankruptcy notices, such as Croydon and Thurrock, have seen their council tax rates increased by as much as 15pc.

This is far higher than the usual yearly cap of 4.99pc, the amount which Havering is proposing to raise council tax by.

Cllr Morgon said that if the government does not approve the loan, it would have to issue a section 114 notice.

The declaration would likely result in the council receiving a large loan anyway, a situation Cllr Morgon called “a bit bizarre”. 

Havering’s Conservative group declined to comment on the financial crisis.

A DLUHC spokesperson said the government recently announced an extra “£600m support package” for councils in England, but refused to specify how much would reach Havering Council.

They added: “Councils are responsible for their own finances and set council tax levels, but we have been clear they should be mindful of cost-of living pressures.

“We continue to protect taxpayers from excessive council tax increases through referendum principles.”