Council's up and down the country are counting the cost of the Credit Crunch. Many have put money into Icelandic banks offering high rates of interest, which have gone broke. A report in the Edgware Times says that Barnet council has possibly lost nearly £30 Million pounds. Given that we had a 40% tax increase when the Tories took power in 2002 to plug a £10 million hole in the reserves, they claimed the previous administration had left, this has huge consequences for us Council Tax payers. Council Leader Mike Freer, who until recently worked for Barclays Bank, said this about the problem "No council could have reasonably foreseen the collapse of Iceland's banks in what once were safe deposits."
Is Mr Freer's statement correct? Well it appears that on 1st April a credit rating agency called Fitch issued a "rating watch negative" warning for three Icelandic banks. The full details of this are available from Sky News. Now I don't know about you, but if I was spending £30 Million I'd check out where it was going. I'd expect the council finance department to use a few credit rating agencies.
The Times article says that Barnet council's deposits were of nearly £30 million and were on Fixed Term investments. Now personally, I don't think that it's the council's job to invest my money. Clearly they need to have emergency reserves and money in the bank to pay the bills and wages, but "Fixed Term Investments"? Susie Squire, at the TaxPayers alliance said of this "The taxpayers of Barnet will be shocked to find out that their hard-earned money has been risked in this way. If Barnet Council had enough money to stash millions in savings accounts, they should have been making tax cuts. At a time when everyone is tightening their belts, relieving the financial burden on ordinary families should have been the priority – this money could have made a big difference to people in Barnet." Not an unreasonable point.
How did Mr Freer, the expert banker, the leader of Barnet Council respond? (Rather arrogantly for a man who's actions have just lost £30 Million) like this "The TaxPayers' Alliance has little grasp of reality when it comes to the complex nature of local authority finances, and their knee jerk reactionary comments are unhelpful and misleading. The council has not ‘stashed’ millions of pounds away. We carefully and prudently profile what will be spent on capital projects and what is not immediately needed is invested to ensure that taxpayers of the borough receive the best value. By following such practice, the council has generated additional income that has reduced the burden on the taxpayers of the borough."
So Mr Freer is saying that they carefully work out how much tax they need to charge you, then charge you even more tax to put into accounts with health warnings from credit rating agencies. One interesting fact I turned up whilst researching this blog was that Brighton and Hove Council took all of their money out of the Icelandic Banks last year. A spokesperson for the council said it suspended transactions with Kaupthing Singer and Friedlander about a year ago over concerns about Iceland's banks expanding too rapidly. Now I would have thought that of all the councils in Britain, as the Leader of Barnet Council had many years of experience in Banking, Barnet council would have been far better placed to foresee this.
When Freer sat down with the finance officer to discuss these major investments, surely he should have said "This is a large sum of money, the returns are very high, what is the risk?" This is called due diligence. Mike Freer as council leader has a duty of care to look after our cash prudently. He is an expert in the field of banking, so he should be able to know how to perform a risk assessment. When you are dealing with Council reserves, you have to be careful. There are two possibilities regarding the money. Firstly it was money set aside for allocated expenditure later in the year, in which case it should have been in minimal risk accounts, albiet on lower rates of interest. The other option is that we have been overly taxed so Mr Freer and the council could have a punt with our money. Whichever of these is true, Mr Freer has shown he is not a competent council leader, is reckless with taxpayers money. He is clearly not up to the job of being the MP for Finchley, Margaret Thatchers old seat.
If his stock in trade was being a dustman, we could possibly excuse his financial naivity, but he's a banker. He should know. Even my friend Geoff who is a dustman knows that if have a flutter, sometimes you lose.