Monday 15 February 2010

The £18 Million Icelandic Black Hole

+++ This Article has been updated. See below +++

Last month, the Barnet Press reported that Barnet taxpayers’ stood to lose £9 million of the £27.4 million the council deposited in failed Icelandic banks.

This was in stark contrast to the preposterous and, frankly, deluded claim by former leader Mike Freer that the council would get all of its money back.

Don’t Call Me Dave is grateful to reader Johnny on the Web who has spotted two paragraphs (9.50 and 9.51) buried in the report to next week’s meeting of the Cabinet which suggest that the council’s losses will be a minimum of £10.4 million and could be as high as £18 million.

This is an almost incomprehensible loss of taxpayers’ money, yet still nobody in the council can bring themselves to apologise to residents left to pick up the bill for their borderline criminal behaviour.

The figures in the cabinet report appear to refer to the £27.4 million capital only. For the financial year 2007/08, the amount of interest due, but not paid, was £1.037 million*. For 2008/09, the figure increased to £1.513 million and for the current year it is likely to be another £1.5 million - more than £4 million in total since the Icelandic banks went into administration.

So taxpayers are actually facing the dire prospect of a £22 million black hole in the public finances. The council admits that these losses will have to be found from reserves and balances. No shit Sherlock!

Former Private Eye Banker Of The Year, Mike Freer, is standing down from the council in less than three month’s time. His enduring legacy will be to leave Barnet in a far worse financial position than the Conservatives inherited from Labour in 2002. Indeed, such will be the state of the public finances that generations will face increased council tax bills and/or cuts to frontline services.

Mike Freer is the Conservative Party's candidate for Finchley & Golders Green at the forthcoming General Election. Oh well, Barnet Council’s gain is Finchley’s loss.

* Due to Barnet adopting Enron style accounting practices, the accounts for 2007/08 were overstated because the council had included the receipt of this money even though, er, it hadn’t actually been received!


Speaking to the Barnet Times, council leader Lynne Hillan said:

“We are very confident we will get most of the money back, and although we have to account for some losses, hopefully the losses will be minimal.”

The council now acknowledges that the loss will be at least £10.4m and could be as high as £18m. Since when is £10 million "minimal"?

“There is no way it is going to increase any more. The very worse case, if everything fails, is reflected in the files.”

The technical term for this is “absolute bo**ocks”. On what rational basis can Hillan say "no way"? The council is looking at recovering just 31% of the money, but who can say for certain that the percentage won't fall further?

As all the people owed money by Hillan’s now defunct company Ashurst Direct Marketing Ltd recently found out, the dividend paid to creditors was precisely nil. £120,000 worth of debts and not a penny repaid. Where exactly did that money go, Lynne?

“It is very important we emphasise this will not effect the council budget and no front line services will be affected.”

Hillan is either deluded or thinks that we are if she expects us to believe that the council can lose £18million without it affecting council tax or services. Sure, Hillan can do a Gordon Brown and delay the pain by using a smokescreen and mirrors, but the black hole in the council’s finances will have to be filled eventually and the longer it is left, the higher the final cost will eventually be.


Dark Lochnagar said...

Fred, my council in South Ayrshire is in a simliar situation. Thy are owed megabucks by Iceland which I don't feel they will ever get back.

Don't Call Me Dave said...


It always used to be the case that Labour would mess up our finances and the Conservatives would step in and repair the damage. Certainly this still holds true with many London Boroughs, but sadly not in Barnet.

With a banker in charge (no typo), you would have expected Barnet to be one of the best run Tory councils in the country. But, just like Gordon Brown, Mike Freer was shown to be hopelessly out of his depth when he finally got his hands on the reigns of power.

No wonder he “resigned” from Barclays.