Sunday, 12 October 2008
Barnet pays dearly for Council’s incompetence
Thursday 9th October 2008 - Black Thursday - will go down in history as the day the once proud Borough of Barnet was brought to its knees by the incompetence, negligence and sheer recklessness of those charged with running the council.
As residents awoke to the dreadful news that nearly £28 million of our money might have been lost on a high risk investment strategy, what words of comfort were there for those of us who will ultimately have to pick up the bill? None. Because the council’s spin doctors were far too busy trying to find other people to blame for this debacle.
Householders are now facing the double whammy of massive council tax rises and having front line services slashed beyond recognition to plug the gaping crater in the accounts if we don’t get all of our money back. And while Barnet burns, leader Mike Freer fiddles: “No council could have reasonably foreseen the collapse of Iceland's banks in what once were safe deposits” was his response.
Is that so, Mike? Then please explain how Brighton & Hove City Council managed to remove all its Icelandic investments a year ago when they had an inkling of the impending crash.
You’re supposed to be a banker, Mr Freer, or is that just a typographical error? What were you doing when credit agency Fitch first sounded warnings. Their spokesman Martin Winn told the Daily Telegraph “We have been highlighting a growing risk about the Icelandic banking system since February 2007. The rating BBB+ is very high risk for a Western European bank.”
Those warnings were passed on to many local council finance managers, prompting some, like Brighton, to stop investing in Iceland. Did Barnet miss that one, Mike?
Well what about the warning from the highly respected Moody’s Investors Service who cut their ratings on Icelandic banks eight months ago? Or the warning from the Conservative and LibDem parties who both sounded the alarm bells in June? Were you too busy watching the Chief Executive’s wide screen television to notice what was going on?
You can’t pass the buck on this one, Mikey. You hold the resources portfolio. Ultimately, it was your responsibility. If this money cannot be recovered - but let us hope that it can - then it represents the biggest case of gross negligence ever known to the Borough.
As Simon Heffer said in his weekly Telegraph column: ”As for the councils who have lost fortunes by investing in Icelandic banks, even though it had long been clear these were risky: sack the officials who took such advice and surcharge the councillors who endorsed it. Too many people have forgotten what a serious business managing money is.”
In trying to defend the council’s recklessness, Cllr Freer - the Tory candidate for Finchley & Golders Green - told the Barnet Times: “Councils have been actively encouraged, and indeed praised, by Whitehall to undertake investments of this kind.” What a complete and utter fabrication! Since when did the government encourage councils to play the money markets and risk taxpayers money?
Did anybody in Barnet Council ever stop to ask why Icelandic banks were paying a higher rate of interest than UK banks? You don’t need to be a banker to know that it was because they were a higher risk.
In all Mr Freer’s excitement to blame other people, he forgot to mention that Barnet is involved in the high risk strategy of arbitrage - borrowing from one bank and lending to another at a higher rate. This is not what councils should be doing and the practice might actually be illegal. Western Isles Council had to be bailed out by the government in 1991 when it lost £24 million which it had borrowed and subsequently lent to the discredited BCCI to try and make a profit.
In 2002 when the Conservatives came to power, the council had borrowings of £39 million. That figure has now risen to an astronomical £215 million. Some of the money has been used to pay for infrastructure works such as the road resurfacing programme and some to repay other loans (perhaps Barnet was advised by Carol Vordeman?) But it is now clear that a significant proportion of this money has been spent on speculative investments.
Perhaps Cllr Freer can advise us precisely how much of our money has been gambled on the money markets, how much more is at risk and who authorised these transactions?
Barnet Council has been criticised by the TaxPayers Alliance for its reckless behaviour. Instead of addressing the TPA’s concerns, the notoriously thin skinned Freer responded “The TaxPayers' Alliance has little grasp of reality when it comes to the complex nature of local authority finances.”
I do not think you will find many people in this Borough who are particularly impressed with your grasp of local authority finances either, Mr Freer. You have not even had the decency to apologise.