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Damning report: Havering Council was negligent putting millions into Icelandic banks
Katharine Barney, Evening Standard26.03.09
A COUNCIL which may have lost £12.5million of tax payers' money in the Icelandic banking crisis is accused of negligence in a damning government report published today.
Havering council, which has six members of staff earning more than £100,000, is among seven local authorities heavily criticised by the Audit Commission for depositing money in the banks after their credit rating had fallen.
Between them the "negligent" authorities put £32.8million into the banks from 1 October last year, just days before Iceland's financial system collapsed.
Councils pay private treasury advisers for information which they receive from credit rating agencies. The report found 144 local authorities across the country hold deposits totalling £953.53 million which are now at risk in Iceland.
In London, £123.1million is at risk from 11 councils, the Metropolitan Police Authority and Transport for London leading to fears of service cuts and council tax rises next year.
The Audit Commission itself had £10million in two Icelandic banks.
Steve Bundred, chief executive of the commission, said: "The circumstances leading up to the collapse of Icelandic banks were highly exceptional, but the potential loss of nearly £1 billion is of great concern ... one in four local authorities has money at risk. We found most local authorities heeded the warning signs about Icelandic banks. But some did not, and a number were negligent. Our report shows there are lessons that must be learned by everyone - local government, central government, Cipfa [the Chartered Institute of Public Finance and Accountancy] and the commission itself."
But a spokeswoman for Havering said it was not told the banks' rating had fallen from an A to BBB (adequate) until an email was sent 20 minutes after a £2million deposit was made on 1 October.
The council's legal department is considering taking action against the commission for labelling it "negligent".
Cheryl Coppell, the council's chief executive, said: "We are outraged the commission has described us as 'negligent'. This accusation is not backed up by any evidence and we have demanded a full retraction. The deposits made into Heritable were made on 1 October, before we were informed of the credit ranking change by Sector Treasury Services. This has been verified by an independent review by PriceWaterhouseCoopers.
"We have been open and transparent right from the start when we were one of the first councils to publicly announce we had money invested in Iceland. This issue has had no impact on services and we remain confident that we will get the money back."
Councillor Margaret Eaton, chairman of the Local Government Association, said: "The LGA, working with councils, expects to get the lion's share of this money back and is working flat out to make sure that the council taxpayer is top of the list for repayment."
Reader views (14)
As a Havering tax payer, I will have to help pay for the council's lack of judgement and negligence. The FT were printing regular articles warning that Icelandic banks could be insolvent as far back as April and May 2008. Do those at Havering who invest live in an hermetically sealed environment where information that is freely available never reaches them? What are the culprits' qualifications for the job?
- Ab, London
"Cheryl Coppell, the council's chief executive, said: "We are outraged the commission has described us as 'negligent'"
Methinks the Lady doth protest too much. Does not Local Government (and Central government) learn from the mistakes of the past. Twenty years ago we had the BCCI banking scandal when several UK Local athorities lost millions of Tax Payers money when they invested in dubious overseas Banks that were trumpeting 'High Interest Rate Yields' on deposits.
History repeats itself again. It appears that Finance Directors are not only suffer from lack of foresight, but are deaf, blind and stupid to the mistakes of the past. No doubt this will happen again in the future.
Maybe this is a prerequisite for working in local government finance!
- Uncle Vanya, East Anglia Area UK
Why was taxpayers money in Iceland at all, it should have been held in local accounts to pay for all those services that they tell us they have no money for how can they have a 'spare' £12M in a foreign bank at least when a northern council bought works of art for the council offices they went up in value eventually - brains obviously in short supply at the moment ...
- Vanessa Neilsen, Romford, UK
Fancy asking a treasury adviser for investment advice,if he was any good he would be a wealhy person & wouldn't have to work for a living.I bet the mugs paid him handsomely for his advice.There is always some bozo who puts his shirt on a horse recomended by a racing tipster for a fee.
- Ronald Whitten, chesterfield derbyshire
and all those chief executives farming councils up and down the land insist that in the private sector they'd be worth a deal more. it's only their commitment to serve the ratepayer, at great loss to themselves that keeps them hard nose to the council highway. they'd tell you that if you want the brightest tools in the box then you've got to offer mega bucks and perks. but, hang on, it's only themselves telling us that and their track records to date beg to differ.
they'd possibly have been better off nipping down to the bookies and putting the wedge on that good thing at cheltenham.
- M.O'Brien, london.uk
Nice to see that the local tax payers are not the only ones that consider our local council incompetent.
I suggest they stop dabbling in the money markets and get back to emptying our rubbish and repairing our roads.
- John Hornchurch, hornchurch essex
apart from the whole pot-kettle-black scenario, maybe I'm missing something here....government-regulated bodies (ie Councils) pay private advisers to decide what to do with our money, with resulting decision being to plough it into overseas banks? sounds like a great idea to me..(not)! and we wonder why the UK economy is in such dire straits.
- Perplexed, Docklands, London
Whatever happened to patriotism and the idea that investing in ones own country was the correct, moral and ethical approach especially for public bodies. It would appear that everyone wanted to be an investment banker even though their real vocation in life was to organise rubbish collections and isue parking permits. How much grease was provided by the Icelandic banks to lubricate these wheels of finance?
- Gazza, London,England
Firstly no one should invest large sums of their own money or in the case of councils their tax payer’s money solely on the rating of a credit rating agency.
There were early signs that the Icelandic banks had in fact over stretched themselves and some people choose not to invest on advice given to them by their financial advisors, so some people were aware that although they may make a little extra in interest there was an increased risk to their or their tax payer’s money.
The basic question to ask is how they can pay a rate of interest that is higher than others are offering.
- Mike Melbourne, Bedford England
How do Councils have surplus cash to invest?. They are given a budget which as a public sector organisation have to give back if they do not spend. This just sounds like councils are making a lot of money from fining their constituents on all their money making schemes and have to hide it somewhere!!!!Glad to see my parking fines have been put to good use!!!
- Dc, London
Why should Councils take any prudence with taxpayers money if they loose it they just put up the council tax?
- Overtaxed, Farnham UK
Havering are never at fault when a mistake is made. When they paid off a useless mener of staff it was not their fault. If the leader of the Council
did not refurbish his offce and the rest of the councillors did not take their salaries the money would soon be paid back. You have to be an adult to admit a mistake and Havering council is never that.
- Mary, Hornchurch,Essex
Havering Council has plenty of money for speed bumps which no one (except a vocal few) want. They earn a fortune in fines through a fleet of CCTV mobile Smart cars (even on Remenbrance Sunday this thing drove past my church clocking the parade. But the Legion and Sea Scouts were in correct order).
But there is no money to repair pot holes in the roads and Park security has been cut. I didn't realise there were still Park Keepers left to cut.
But I expect "Living" the Councillor's Fanzine will tell me that this loss is a good move for my benefit by the council.
- Havering Council Taxpayer, HX
What in Hades was the Audit Commission doing with £10mil spare dosh to invest? I assume the Commission's wage bill is met by the state and the commission's purpose is to audit the auditors. Something smells to high Heaven here!
- Kiwi Expat, London, UK
