The loss of public money in Iceland

It was a blow to learn that government, Councils and charities have lost over £1 billion in the Icelandic bank collapse.
Some Councillors have asked me what should they do now? I suggest the following:

1. Co-operate fully with the Treasury and FSA, who are pursuing the Icelandic authorities to get as much of the money back as quickly as possible.
2. Set up an internal Council enquiry to discover who made the decision to put the money with the Icelandic banks, what advice they took at the time, and why the Chief Executive signed off on the deposit or the system to place the deposit.
3.Work through the Local Government Association to review Treasury guidelines and rules concerning the management of Council balances.
4. Put in place sensible new rules in your Council, in the light of 2 and 3 above.

The public will expect Central and local government to do everything in their power to get the return of the money. They will also expect very expensive Chief Executives, who are recruited to manage these type of things for Councillors and lay members of quangos, to take responsibility.

Some think Councils should now withdraw all their deposits from other banks just in case, as they are not protected by the Treasury in the way smaller depositors are protected, and place the money in short term government bonds. This would cut the return for Council taxpayers, and be damaging to the banking system as a whole. There needs to be a better way, agreed between central and local government urgently.

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9 Comments

  1. Derek
    Posted October 11, 2008 at 12:30 pm | Permalink

    These local authorities have revelled in operating their little Wendy House version of big business. There constant seminars, by external consultants, on how they should take up the same working practices as whatever corporation is flavour of the month. On top of this their CEOs, mission statements and corporate style branding. Perhaps they might have to accept, like a business, that if a significant investment is made that goes bad it's chalked up in the accounts as a loss and executives involved walk the plank.

    With the seizure of Icelandic assets the government seems to be unwittingly sailing into choppy waters it may come to regret. Take, as an example, an Icelandic bank owned retail chain the government might seize. There's two potentially difficult outcomes. The first is it has a fire sale of the asset to get cash back rapidly for UK depositors. The downside is it provides an unflattering mark to market causing a devaluation in the rest of the sector. The second is it holds the asset and the company runs into difficulty, does it liquidate it and extend the dole queue, or does it pump money in providing an unfair advantage over competitors?

  2. Freya Sykes
    Posted October 11, 2008 at 12:42 pm | Permalink

    Too true – this is very sage advice and the Local Councils irrespective of the party in leadership should seriously consider this route to action.

    Above all cross party co-operation should come into play now more than ever – this is no time for petty point scoring – not when the taxpayer's money lies in the balance like this.

    Wise words Mr Redwood, lets hope the local councils are listening!

  3. Deborah
    Posted October 11, 2008 at 4:54 pm | Permalink

    "They will also expect very expensive Chief Executives, who are recruited to manage these type of things for Councillors and lay members of quangos, to take responsibility"

    Regrettably, many of these expensive Chief Executives have never been up to the responsibilities they are paid for. In recent years Local Authorities have recruited on the basis that professional qualiifications and a rigorous approach are not necessary in the higher echelons of management – good presentation skills and an ability to avoid blame are the new "core skills". I doubt the Chief Executives will even understand that they have failed, let alone know what to do about it.

  4. Rory
    Posted October 11, 2008 at 6:07 pm | Permalink

    Wasn't this lesson learn't with BCCI? If the rate seems too good to be true…

  5. mikestallard
    Posted October 11, 2008 at 6:58 pm | Permalink

    Deborah is so right – we, the public, need some people to take responsibility. Cambridgeshire, of course, is Conservative. there has been quite a lot of moaning in the local press, too about the amount of money spent on hiring expensive people……..
    The other thing, which you have not said is, surely, that when the Public finances are exhausted, won't Mr Brown need as many friends as he can get? I do not think the Icelandic government will be among them.

  6. Simon
    Posted October 11, 2008 at 10:25 pm | Permalink

    I heard Nick Chard of Kent County Council on the Today programme saying how he employed special advisors who reccomended putting £50million into one of these dodgy Icelandic Banks. Interestingly enough the Today programme had been running a series on Iceland a year or so ago which spoke of money laundering and Eastern European organised crime involvement in Iceland. Chard said that the advisors used the ratings agencies to decide uppon these investments. If that was the case surely a humble clerk could look up the ratings and place the investments accordingly. The ratings agencies were discredited a year or so ago for inflating the ratings of various instruments.

    The thing I find surprising is that all this information was in the public domain yet still Councils, Police Forces and Charities were piling money into these banks. I wonder who got the comissions paid by the banks for bringing the business to them.

    Then I heard some arrogant jobsworth from the Local Government Association saying that Government must bail them out or Council Taxes will have to rise. That summed it all up for me. The pure arrogance of the public sector, awash with cash, splashing it around at the behest of some advisor when 5 minutes on Google would tell them that's a bad idea then telling us we must foot the bill when they get it wrong. All along, especially in the case of Police Forces, pleading poverty while splashing out on luxury cars for officers to swan around in whilst handing out fines to us. The whole thing stinks to high heaven.

    I have always thought until recently that the public services in this country were fundamentally decent but my view has changed. There seems to be a deep rooted (problem -ed) that afflicts every aspect of the public sector. The whole lot of them on the take, the arrogance and disdain for those they are supposed to serve, the mega salaries, the self righteous preaching, the expenses, the pensions, the "one law for us" approach, the bans, the fines, the spying, the lying and the oh-so-public manifestation of all this, the flash, top of the range 4×4 while they tell us to reduce our carbon footprint (the Police and Highways Agency are by far the worst for this), even the Ambulance Service are driving around in Jags. Worse still is that it seems to be a cross party conspiracy against the voters with no party prepared to reign in this profligate spending. (The public sector executive heads -ed), so arrogant, they cannot even contemplate that they may have made a mistake, it's always someone elses fault.

    I see little hope for the future, there is no one around with the will to put an end to all this. Cameron might talk a good job but he does nothing about the Tory Councils who are amongst the worst offendors and so the public sector binge continues, even the Bankers are in on it now, no doubt they'll show us how to really splurge on taxpayers money.

  7. Stuart Fairney
    Posted October 12, 2008 at 8:46 am | Permalink

    How many Chief Exec's and Heads of Finance will be fired fro said local authorities? Outside of a few people settling personal grudges and using this as an excuse, my bet ~ none, excuses being

    ~ unforseeable and unprecedented
    ~ outside the remit of the job
    ~ unable to act quickly and freely because of
    ~ getting on with the job, (seem to have heard that one elsewhere recently)
    ~ don't receive the same remuneration as private sector, ergo different standards

    or any combination of the above (assuming there are even such calls, I have heard none as yet. If this was a private company the Beeb would be howling from the rooftops of course).

  8. will j
    Posted October 13, 2008 at 10:50 am | Permalink

    Isn't there a forum where Local Authority treasurers get together and discuss investment ideas. And especially investment risks with warnings. A website/forum? I find it strange that local authorities should have been pursuing such independent strategies.

  9. ruth
    Posted October 17, 2008 at 8:06 pm | Permalink

    I would like to know who Nick Chard's special advisers were and whether or not these special advisers were used by all councils etc who invested money in the Iceland banks

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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