Tuesday, 4 November 2008
Has Barnet Council broken the law again?
Private Eye magazine has raised an interesting question about Barnet’s £28 million Icelandic investments. The Rotten Boroughs column (issue 1222) asks: “So was Barnet breaking the law? Guidance on local authority investment issued by the Office of the Deputy Prime Minister in 2004 states that less “prescriptive” regulations introduced in the 2003 Local Government Act “allow the temporary investment of funds borrowed for the purpose of expenditure in the reasonably near future”. Then it goes on to say that “the speculative borrowing purely in order to invest remains unlawful.”
The council has admitted that it borrowed £40m in 2006 - two years in advance of when the money was required. The report to Cabinet on 23rd October 2008 concedes that borrowing this far in advance “is not the norm”. Does anyone think that ‘two years in advance’ meets the definition of “reasonably near future?”
The most damning aspect, however, is the requirement that funds only be invested temporarily. According to paragraphs 9.6.2 and 9.6.4 of the Cabinet report, the council admits to entering into long term contracts with the Icelandic banks for terms of up to three years. That is hardly temporary!
So even if we do eventually get our money back, there is clearly an arguable case that the council’s investment policy was illegal.
Last night, council leader Mike Freer appeared before the Cabinet and Overview Scrutiny Committee and was asked by LibDem leader Jack Cohen: “How many times in last two years have you met with officers to look at the Council’s investment portfolio”? According to a LibDem press release “Cllr Freer revealed he had never to his recollection had any meetings or indeed never seen a list of the Council’s investments . He admitted that the first time he knew any details of where the Council deposited money including the investments in Icelandic Banks was when the news about the Icelandic Banks broke a few weeks ago.”
But hold on a minute. The council has admitted that it borrowed £40 million in 2006 and the money was invested to take advantage of the interest rate differential - speculative borrowing which is not permitted by law. The Cabinet Resources Member at the time was, and still is, Mike Freer. Is Cllr Freer really saying that under his watch, officers borrowed £40 million and he knew nothing about it? If true, that sounds suspiciously like a serious dereliction of duty.
In 1991, Western Isles Council lost £24million which it had illegally invested in BCCI. The council had to be bailed out by the taxpayer and it was 14 years before they got their money back. The council’s Chief Executive and Chief Finance Officer were sacked and the leader of the council leader resigned. Et tu, Barnet?
13:45 STOP PRESS: Leo Boland has just announced his resignation as Chief Executive of Barnet Council....to take up the position of Chief Executive of the Greater London Authority. Will he be taking his telly with him?