Friday 17 October 2008
Money For Nothing - Barnet’s in Dire Straits
Just over a week has passed since Black Thursday - the day the news broke that nearly £28 million of our money was at risk in the Icelandic banking collapse. It’s a sad, sad situation but still no apology or words of comfort to put residents at ease.
If the council could turn back time, I am sure they would, and nobody is accusing them of deliberately losing our money. So is it really asking too much for Mike Freer to say: “We're very sorry about this. We are working around the clock to try and get your money back.” But sorry seems to be the hardest word.
Next week, a report on this crisis will be discussed by the Cabinet. You can download it from the council’s web site.
Paragraph 6.2 states: "The 2007/08 Statement of Accounts, which have been signed off by the Council’s external auditors, includes £1.037m of interest which has not yet been received and therefore the accounts are potentially overstated by that amount should the interest not be paid."
Isn't this what Enron was doing - overstating profits by including revenue which had not actually been received? Has the council been trying to massage the figures to help get an improved rating from the Audit Commission? Can anyone explain what’s going on?
The council would have you believe they were acting prudently, but paragraph 9.3.2. of the report contains an admission that they were playing the money markets. The council borrowed heavily in 2006 because they thought the rates of interest would be higher in 2008 when the cash was actually required. You can dress that up as much as you like, but borrowing money you don't yet need because you think the rates will go up in the future is speculation, pure and simple!
Council chiefs are patting themselves on the back because their interest rate prediction was initially correct. But they got lucky. Lucky, lucky, lucky. Only a few weeks ago, Mystic Mike said that the credit crunch could not have been foreseen. It is one thing for the council to invest its spare cash on a short term basis, but to deliberately borrow long term and lend short term is gambling. Northern Rock tried something similar and look what happened to them.
Paragraph 9.9.4 details possible courses of action the council will have to consider if we don't get our money back. It does not mention putting up council tax. Are they burying bad news, or giving a guaranteed undertaking not to put up our taxes? They should tell us the truth.
Cllr Freer says that Barnet acted responsibly. The crucial point, which applies to all local authorities, is that councils should not have a low risk policy, but a no risk policy - especially in the current climate when money is too tight to mention.
Let us hope that the funds and missing interest will soon be returned otherwise some heads are gonna have to roll.