Effective 'scrutiny' is vital if our public servants and representatives are to held to account. Yesterday, I issued a press release commenting on a 'draft' report published on the website of Powys County Council. It was entitled Scrutiny Review - Treasury Management. Have to say it seems odd to publish such a sensitive report in 'draft' - but the last thing I'm going to do is accuse the Council of being too open!! The subject of this review was the Council's investments in Icelandic Banks. I've taken a close interest in this issue since it blew up last September/October, and have been awaiting the report from Powys with keen anticipation.
Now its not just Powys Council which had big investments with Icelandic Banks. Hundreds of public bodies did. I hope other Councils will carry out the same sort of scrutiny into what happened. What we know about my local Council is that it had £4 million invested - and it may be that most or all of this money could be lost, plus the £200,000 per annum interest. I happened to be in the Council chamber last year when a 'Statement' was made to Councillors outlining potential losses. I remember my eyebrows shooting up when I heard that £1 million was invested with Landsbanki as late as September 5th, just one month before things went completely belly up - and after several other local authorities had decided Icelandic Banks were too risky. There is a local irony in that the Dyfed Powys Police Authority had so decided several months previously.
Anyway, here are a few quotes from the Draft Report - "identified weaknesses in the Council's operational system which require action" and "the Council has become complacent after several years of 'risk free' investment" and "The Council's management team has been given little supervision or direction by the Board or senior management" and "the CIPFA Code of Practice encouraged too much trust to be placed in credit ratings - credit ratings (which) turned out to be virtually worthless". This is strong stuff - and the fact that its taken such a long time (and is still in draft) suggests there's been quite a bit of debate going on behind the scenes.
I think we should wait until the final report is published before making any final judgement on this. But I do think there is a genuine stab at real scrutiny happening in Powys. This is very good news for democracy in Powys, and I'm all for it. Real scrutiny isn't comfortable for Council officers or Councillors themselves - but its very good indeed for public confidence in our Councils over the longer term. All I will add is that when the Final Report is agreed, the Council should present it at a Press Conference, as up front as possible, and take any criticism there might be on the chin. Effective opposition is virtually non-existent when a Council is run by an Executive Board on which all groups are represented as of right (as it is in Powys) - but the sort of scrutiny we've seen here goes some way to providing it.
9 comments:
Just read the report. Interesting and a very fair attempt at scrutiny in some ways and the members of the panel should be congratulated in my opinion.Having said that it is still a real indictment on those responsible for investing taxpayers money. They seem not to have been able to ask the right questions because of a lack of knowledge regarding international investments. It was astonishing to read in both 7.7 and 7.8 that fairly junior staff were it seems responsible for the investment decisions and they didn't have a clue what was going on in Iceland. This was despite the warnings given in 2006 by Arlingclose,for example, which was used by other authorities and the comments made in the FT and the Economist. You would have thought that council officers would at the minimum have kept abreast of what was happening to the Icelandic economy given that they were investing money there. After all the population is so small that if anything did go wrong then the government could not bail out the banks. The report describes the business model in Iceland as unviable and some people were saying this quite some time before the crash. Ordinary investors without professional advice might not have been expected to know this but institutional investors should have asked the right questions. I also find it amazing that Dyfed Powys Police authority was warned and pulled out yet no one thought to speak to the other local authorities. You are again right Glyn to argue that no authority in the 21st century can operate with an Executive Board of all the colours. There has to be real scrutiny which is often the key element of the 2000 Act which is neglected in too many authorities. Councillors also have to have the knowledge to ask the right questions and realise that being a councillor now requires a fair amount of background reading besides merely attending meetings and representing your constituents.
Glyn,
What gets me, and not just iin Powys is why anyone thought that putting money into the juristiction of a tiny overseas territory was in anyway sensible. And just for 0.5%! No one, I hope, would have thought of putting cash into Zimbabwe.
By coincidence, last Sept., I was looking for a better interest rate for our Town Council funds. I came upon the Iceland offers and something triggered a memory, which on investigation proved correct, that one bank had reported trouble earlier in the year. Needless to say I passed on. Why similar alarms were not raised in the minds of the multitude of investment 'professionals' in our public bodies is beyond me.
Reading the POwys report, I strongly feel that someone should take the can, not the low level officers who seem to have been given the authority to proceed recklessly but one of, or indeed the whole of, the management board.
I heartilly concur with what Jeff Jones has said.
One should put Arlingclose in perspective. Although the firm made a good call in 2006, they were a minority player in the local government field. As I understand it, they still have less than 10% of local authority treasury management consultancy accounts.
I have the impression - perhaps Jeff Jones, who was in local government in Bridgend for a long time, would confirm or deny this if he has time - that there was pressure from the centre on local government finance officers not to use their own initiative or common sense. Westminster knew best, and commercial consultancies were wiser than public servants.
My view of all of this is quite simple. Treasury Management has always played a part in local government finance even if most councillors did not understand it or even bothered to show much interest. Between 1945 and 1975 as more money was poured into local government by central government most of the money invested was in fairly safe low interest investments. All of this started to change in the 1980s as local government expenditure was cut and some Treasurers started to look for ways to be more creative. In Wales my own local authority Ogwr BC which was heavily into loan swaps did not end up bankrupt only because a High Court Judge declared the scheme to be ultra vires. They even sold off all the council mortgages to a bank and didn't read the small print of the agreement that stated that the bank could ask for its money back. It was saved this time by a secret loan from Port Talbot BC. Except for the then leadership most of the councillors did not have a clue what was going on. In the 1990s a number of Councils such as Western Isles were involved with another too good to be true scheme with BCCI.In difficult times treasurers will always look for ways to supplement their authority's income. In Bridgend's case £400,000 earned from investment would equal 1% less on the council tax or £400,000 less in cuts. In the boom times all of this seemed an easy, painless way to earn money.Last year local government invested about £40 billion and earned £1.8 billion in interest. Some small English district councils earn more in interest on their investments than they collect in council tax. In a world where only economic historians realised that banks could go bust what could go wrong.The Icelandic bank saga is now in the past. Although lessons will be learnt and the Powys scrutiny report was a step in the right direction, I'll be amazed if any of the councils involved will get all their money back. What should worry all of us is the future. Local government has already lost £600 million in interest because of the fall in interest rates. On top of this their surplus land has also fallen in value by about 64%. There is an interesting article on BBC Northern Ireland on the possible effect on unsuccessful land deals on the Northern Ireland budget. Throw in cutbacks in future local government settlements and you have the all the ingredients of a perfect economic storm for local government.
John Prescott's old dept. had a significant part in this which also needs to be examined, preferably with a public enquiry.
We seem to spend millions on politically motivated rehashes but let crass incompetence like this pass by without any blame or accountability. All I've heard following the audit commission's report is lame excuses.
The public sector is obsessed with process and imagines that the outcomes will look after themselves. It's a disgrace.
Jeff - Not much to disagree with in your two comments. You have greater experience than I do of the background to this issue. The principal aim of my post was to highlight what I see as a new level of scrutiny within the Council. About time, you might say, but it is a big step forwards.
John - I've not taken the same approach to this as you have, but I do not think your call for someone senior to carry the can is at all unreasonable. I take the view that since Councillors seem to have scrutinised this failure seriously, I should accept their conclusions.
Frank - You may be right - but in the case of Powys, there seems to have been no mechanism for 'advice' to be given - only information which was not considered by senior officers at all. This is a serious failing, and has been called as such by the scrutiny committee.
You are right that it is big step forward and Councillors such as Tim Van Rees whom I remember from my early days on the WJEC pre 1996 deserve to be praised for this report. I think that you should also be given a fair bit of praise for the way in which you are once again encouraging a real debate about issues that should concern everyone in Powys. More power to your elbow.
Jeff - Conservative Councillor, Aled Davies has been a key player in this as well. He is quiet, tough, determined and straight - and is going to be someone about whom we are going to hear a lot more. Aled has just taken over as Chairman of the Montgomeryshire Conservative Association. Over the last few years, several new faces have emerged from the Conservatives in Montgomeryshire. In part this is because we have the same attributes as Aled. We focus on what we can do to help the people of Montg in a positive way rather than a negative knocking way - and won't stand for being messed about.
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