Thursday, October 09, 2008

Icelandic Meltdown Hits Sutton

People have been worrying about meltdown at the North Pole for years. They didn't suspect it would start with the Icelandic banking system.

Sutton is one of the many local authorities in the UK to suffer in the economic turmoil with £5.5m of loans in Heritable Bank plc, the UK subsidiary of Landsbanki. Heritable was placed in administration following the nationalisation of its parent company leaving Sutton and many other institutions in limbo.

I want to see that every penny-piece of taxpayers' money is secure. Safeguarding the taxpayer's well-being, coupled with sound financial management, is the Conservative way. I have given the Chief Executive my support for the call for the Government to step in to help Local Authorities in these exceptional conditions.

In this time of economic hardship it is absolutely essential that the Lib Dem-run Council does whatever it can to protect the council tax payer's interests - as Conservative councillors my colleagues and I will do whatever we can to ensure this. We have been asking questions of the ruling party and officers to investigate the Council's investment strategy and risk management whilst recognising the particular backdrop to this unexpected loss.

It was disappointing to see Vince Cable unhelpfully trying to lever some political capital out of the situation whilst others were seeing their monetary capital disappearing. He criticised councils for investing in Icelandic banks explaining that he and his colleague, Lord Oakeshott had concerns as far back as July. It is a shame that he didn't tell his colleagues at Local Authority level about his fears as it might have saved Sutton £5.5m. Never mind, he got his headline.

12 comments:

mick said...

is the council going to charge us more council tax if they can't get the money back?

Scully said...

Mick

It's possible but it doesn't automatically follow. The Council has some cash reserves. It also has over £60m of debt. The money has not been lost from any particular project or ring-fenced sum. The money collected by the Council through grants, council tax and income tends to come in at the beginning of the year and is spent over the 12 months. This presents a cashflow issue when millions of pounds are with the Council unspent. They regularly lend up to £75m out to a variety of financial institutions for a set contract on timescales ranging from a week to a few months.

We have asked that the matter be investigated by two of the main Council committees, Scrutiny Overview and Audit, in order to better understand the investment strategy and the consequences. First priority though, is to get the money back. The Heritable Bank is in UK administration with its assets frozen, so the opportunity for us to get the money back, has not been totally lost.

Getting On With The Job said...

With the inflated salaries offered to local government finance officers these days, I would have expected more responsible investment decisions to have been made in the civic offices. Name, shame and sack these cowboys for investing our money in such dodgy banks.
Though I am sick of his parading about as the fount of all economic wisdom, I think Vince Cable is quite right to criticise his cronies in Lib Dem controlled Sutton.

Cllr David Pickles said...

As someone with over 30 past years experience in the City, I think it rather unfair to try to gain political capital by criticising the Lib-Dems here for the £5.5m invested in an Icelandic Bank, that appears to have gone "belly-up".

For starters, Sutton aren't the only council in this position, and they would have received what they considered to be good advice at the time as to their placing this money.

Everybody makes mistakes, and I think tht Cllr Scully should think long and hard about what the Tories would have done had they been in power and been given the same advice.

It's as well to remember that those who live in glass houses should not cast the first stone.

Scully said...

David

You will see from my comments that I am not making political capital from the council's investment decision for the very reasons that you state. Questions need to be asked for basic management purposes and these would be relevant no matter what party formed the administration. My only political point at this moment is that it is disappointing to see Vince Cable crowing how wise he was back in July with the benefit of hindsight. Many Westminster politicians spray around Parliamentary Questions in the hope that one finds a target. Since neither Vince Cable nor Lord Oakeshott seemed to share their concerns with any of their colleagues until the meltdown three months later, I suspect that this was another example of aerosol politics.

Scully said...

David

I forgot to clarify one other point. Sutton's investment was with Heritable Bank plc. This is a UK public liability company that has been put into administration by the FSA. The main shareholder is Landsbanki, hence the Icelandic connection. It is too early to tell but this may have had a bearing on the advice given by the Council's Treasury advisors.

Bob Briant said...

As with the Garden Waste debacle, I suppose no one on Sutton Council will be held accountable for this latest foul-up. They never are nowadays: it's the new morality of politicians and bureaucrats.

The usual rule of prudence is to bank and hold balances in the same currency as most revenues/income and spending accrue. Now try hard as I may, I have serious difficulty in believing that Kent CC, Transport for London, the Metropolitan Police and LBS council etc had much income or spending in Icelandic Kronor.

In which case, why keep balances in Icelandic banks?

Cllr Tim Crowley said...

David,is it not incumbent of us as elected members to not only hold the administration to account but also to try and look after the interests of taxpayers money.
I dont really care what other Tory authorities have done,i am only interested in what has gone on at LBS.
I too worked in the city as a trader for some 20 years and unfortunatley for LBS i can speak from a position of major knowledge on this.
I do not expect the administration to micro manage the treasury but i do expect risk management procedures to be in place that do what they say on the tin otherwise we might as well hand over responsibility for treasury management to an external authority.
Why did we place money on deposit with Heritable bank on the 30th September?
This was done on the day all Icelandic banks were downgraded by the 3 major credit agencies for the 3rd time in 2008.
Why did we place money with a subsidary bank whose parent had been on credit watch since July?
As Vince Cable said on the politics show today any councils who invested 2 weeks before the Icelandic banks collapsed were "unbelievably silly"
Why then did Vince and his chums from Lib Dem HQ not inform anyone at their longest standing council in the UK or even bother mentioning it to the two local Lib Dem MPs?

Bob Briant said...

Who or what part in LBS Council was responsible for authorising the investment of £5.5 million of rate payers' money in an Icelandic bank when Iceland isn't even in the European Union with the legal protection that brings?

Never mind about all the other fools and incompetents ruling over us. As local residents and council tax payers, I think we are entitled to know who or what screwed up in this case. There has to be an end to this prevailing fashion where no one is accountable for failings in public services.

Getting On With The Job said...

..and another thing.

Conservative coucillors must be even more assiduous in holding these spendthrifts to account now that the private sector is cutting costs and staff.

They are still advertising non-jobs on their website eg a Performance and Information Manager at £32-35k "analysing data in the engine room of one of the country's leading public service partnerships"

I would like to know exactly how many staff the LBS employs, what the wage and pension costs are, compared with how many staff were employed at the time the Lib Dems took over.

And we will not tolerate any increase at all in council tax next year, so they must start thinking now about how to cope with that in the bloated and politically correct bureaucracy of St Nicholas Towers.

Cllr David Pickles said...

..........Tim - they are very valid points you make.

Let's discuss them (if we have time) together at the next council meeting.

Bob Briant said...

Quoted from a famous vernacular translation of Chp 23 of Voltaire's Candide (1759):

As they [Candide and Martin] were chatting thus together they arrived at Portsmouth. The shore on each side the harbor was lined with a multitude of people, whose eyes were steadfastly fixed on a lusty man who was kneeling down on the deck of one of the men-of-war, with something tied before his eyes. Opposite to this personage stood four soldiers, each of whom shot three bullets into his skull, with all the composure imaginable; and when it was done, the whole company went away perfectly well satisfied.

"What the devil is all this for?" said Candide, "and what demon, or foe of mankind, lords it thus tyrannically over the world?"

He then asked who was that lusty man who had been sent out of the world with so much ceremony. When he received for answer, that it was an admiral.

"And pray why do you put your admiral to death?"

"Because he did not put a sufficient number of his fellow creatures to death. You must know, he had an engagement with a French admiral, and it has been proved against him that he was not near enough to his antagonist."

"But," replied Candide, "the French admiral must have been as far from him."

"There is no doubt of that; but in this country it is found requisite, now and then, to put an admiral to death, in order to encourage the others to fight."

http://oregonstate.edu/instruct/phl302/texts/voltaire/candide.html