Thursday 13 November 2008

Barnet Council. Up the proverbial creek. Paddle missing.

At the special council meeting on 4th November to discuss the Icelandic banking crisis, LibDem councillor Monroe Palmer tabled an amendment calling on the Cabinet Resources Committee to revise its Treasury management policy to “prioritise the security of capital, rather than striving for the very highest interest rates available.”

In response, council leader Mike Freer said: “Even basic accountants will know, if you get a rate of interest below inflation, your capital is eroded. That is not a sensible move.”

Two days later, interest rates fell by 1.5% to 3% - substantially below the rate of inflation. Yesterday, the Governor of the Bank of England let it be known that he will allow interest rates to fall to zero if necessary. That’s good news for home owners with mortgages, but rather bad news for Barnet council with £328 million cash on deposit.

Our capital is now being eroded and, thanks to those wise people who chased the higher interest rates (seemingly oblivious to the higher risk they carried), the rate of erosion is set to increase significantly in the weeks and months ahead.

The council cannot refinance its long term loans taken out at higher rates of interest because the capital is frozen in Iceland - possibly lost.

Does anyone still think the council has been sensible in its investment strategy? No doubt Mike Freer will say, as he always does, that the interest rate collapse could not have been foreseen. But this is precisely why the council should not have been so utterly reckless with our money in its investment strategy.

Barnet adopted a high risk strategy which worked for two years but has now backfired. Monroe Palmer’s proposed amendment calling for a low risk policy, which the Conservatives blocked with their majority, did not actually go far enough. A sensible council would have adopted a no risk investment policy.

Councils should not be playing the financial markets. Investing surplus cash on a short term basis until it is required is sensible. But Barnet council borrowed specifically to lend, which is simply unforgivable.

Even now, with a gaping £28 million hole in its finances, the council says “There is a risk of the Council becoming too risk averse in its response to this situation, and not achieving budgeted deposit income. In the past two years, the Treasury Management Strategy has delivered £26m interest earnings across all funds to support the council budget.”

Has the council not learned anything about risk?

At least we now know the real reason for their dangerously cavalier attitude to investments. The council actually budgeted for investment income in order to run basic services. Mike Freer has acknowledged that this income was used to hold down the rise in council tax last year. Being so reliant on interest rates is hardly a sensible way to run a council.

But even if we get our £28 million back, with base rates now collapsing, the council cannot possibly meet its interest target for the current year. So will services be cut, will council tax go up or, like Gordon Brown, will Mike Freer allow borrowing to go through the roof leaving future generations to pick up the bill for his folly?

Many of us had high hopes when Cllr Freer became leader. We thought he would be ruthless on cost cutting by eliminating waste and bureaucracy. Instead he borrowed recklessly, gambled and lost. Mike, you can sit in your ivory tower blaming everyone else for this debacle, but in the eyes of the public, you are a busted flush.


Rog T said...

Trouble is David, it's not Barnet Council, it's the Barnet Council Taxpayers.

We know what the rats do to the sinking ship (I suspect Mr Boland is just the first of many)

We know that no one ever gets held to account.

I'd suggest that any Councillors who feel the need to take more risks with our money, in light of what has happened, should be declared unfit to hold public office. If they want to take risks go to a casino and spend your own money. This isn't what Council's should be doing

Anonymous said...

and who does the LGA chose to represent then in iceland? a rep from barnet. They trust barnet officers. other councils do too. the officers are fine, its the politicians !

Don't Call Me Dave said...

Interesting point given that Mike Freer has blamed officers for this scandal! If they were to blame, shouldn’t he be the one going to Iceland?

Anonymous said...

oh come on. Do you seriously believe that freer didn't make the decision? councillors rule, officers do as they are told out of fear of losing their jobs.

Anonymous said...

No Dave, then you would find something further to slag him off for! Then probably suggest he should have sent an officer anyway.

Don't Call Me Dave said...

To Anonymous (16:37). The role of councillors should be to devise policies and provide leadership. It is the job of officers to carry out the will of the elected councillors.

There is nothing wrong with professional officers giving advice to councillors, but as Margaret Thatcher once remarked: “Advisors advise, Ministers decide.”

In my blog “Has Barnet Council broken the law again?” I questioned Mike Freer’s apparent claim that officers had borrowed £40 million without his knowledge (it now transpires that officers took out loans of £70 million in 2006).

The Council’s Constitution states (Financial Regulations, Part 1, Section 6): Cabinet Resources Committee will receive reports on its treasury management activities, including an annual strategy and plan in advance of the year, and an annual report after its close in the form prescribed in the Treasury Management Practices.

Mike Freer chairs the Cabinet Resources Committee, so why didn’t he know what was going on? He needs to tell us exactly what he knew and when he knew it. Did he receive the reports that he should have received? If not, why not? If he did receive the reports, did he read them? If not, then he has arguably failed to carry out his duty as Cabinet Member for Resources.

Don't Call Me Dave said...

To Anonymous (18:43). Given that there was absolutely no chance whatsoever of Mr Medlam returning from Iceland with a wheelbarrow full of our money, the last thing Mike Freer needed was to be associated with failure. You can see the headlines “Freer returns empty handed” - so obviously he was going to send an officer.

I don’t think Barnet should have sent anyone to the meeting. Instead, the Local Government Association should have sent an independent financial expert or an officer from a council which did not loose any money and whose judgment is somewhat better than Barnet’s.

Rog T said...

I believe that of the 100 odd councils who lost money, Barnet lost the 5th most. In my book this means we are the 5th most useless and in the queue of council's to send someone to sort it out we should be 5th from last.

It reminds me of a drink I was having with two friends at the pub. One was having marital difficulties. The other said "If ever you need any advice, ask me because I know all about these problems, I've been married 5 times". My other friends replied "If you've been married five times you're the last person I'd ask for advice".

Anonymous said...

wait for the top brass to get pay rises next month. whilst ordinary workers get sacked in out sourcing. climate of fear continues in barnet.

Don't Call Me Dave said...

I do not think that any chief officers or councillors should receive salary/allowance increases until the £28 million is returned.