Nottingham Labour looks to have shot itself in the foot with its latest attempt to persuade city residents to vote against having a directly elected mayor.
While the party nationally actually has official candidates in some cities where an elected mayor has already been signed off, the branch in Nottingham has set its face against even the concept of one.
And not by half.
It has variously suggested that an elected mayor would cost £1million, would struggle to work with the city council, and might even be easily corrupted. For good measure, it’s slung a bit of mud at the yes campaign by questioning not what it’s said but who is paying for it.
Even supporters of the current leadership have privately expressed disappointment at the no campaign's failure to sketch out the existing system’s successes or an alternative vision for moving the city forwards.
Some of those concerns have now come out into the open in the wake of the appearance of leaflets bearing Nottingham Labour's imprint which critics claim are naked scare tactics.
The leaflets claim that having an election for a mayor risks allowing far right organizations like the BNP or English Defence League take power in Nottingham. But they don’t use quite so many words. One leaflet says: ‘Racists Want a £1m Extra Mayor!’. So that’s telling you...
The BBC says some of those leaflets have been distributed near mosques. While they are clearly from Nottingham Labour they don't bear the details of a named publisher, which is naughty under electoral law.
The likelihood of the BNP winning a mayoral vote in Nottingham is somewhere close to hell freezing over on the probability scale. And the EDL couldn't actually field a candidate because it isn't a political party.
So what is Nottingham Labour’s no campaign up to?
City council leader Jon Collins says it's irresponsible not to point out the risks attached to a mayoral vote. But these supposed risks would surely affect everyone - why point them out only to certain communities?
The reaction among some of Labour's own party members and supporters has been one of contempt. Writing on the left-leaning website Labour List, Jo Tanner, the national director of a Labour yes campaign, said such scare tactics were “not what I expect from the Labour party I joined”.
She went on: “I could talk about the breach of election law which demands that materials should feature an imprint by a named person. I could talk about the total distortion of the facts, that in 2011 the BNP received 760 votes [in Nottingham] compared to the Labour Party’s 112,325.
“For me, though, it is the impression this sends to the people of Nottingham – and beyond – of the Labour Party, of the depths to which some of our number will sink.”
The tone of Jon Collins’ response on Labour List suggests he realises there is a case to answer, but – despite Jo Tanner’s emphatic statistical evidence – he insists the risk is real.
I don't know who sanctioned these leaflets or what process concluded they were an appropriate tactic. But they risk being seen as an aggressive and distasteful attempt to exploit fear among some communities. Whatever the result, it's unlikely these leaflets will be forgotten.
They are, though, consistent with a no campaign which has made a series of controversially negative claims, and appears to be targeted not at the city's movers and shakers but at certain communities.
The no campaign may well find itself in the winning camp next Friday morning, through a combination of voter apathy about an issue which does not immediately solve day-to-day hardships and Nottingham Labour's famed ability to get the vote out (particularly a postal one).
But even those movers and shakers sympathetic to the city leadership will not view this as a victory. The yes campaign has attracted significant discreet backing from people who believe that, for all its undoubted community-level achievement, the city council has failed to spell out a vision of where Nottingham needs to be in the future.
While ministers might be expected to say Nottingham will miss the cities' boat without a mayor (this is a government initiative, remember), senior civil servants in Whitehall have also suggested the city appears to be confirming itself in the role of a "second division" player, confirming the earlier analysis of former Nottingham MP Alan Simpson.
Their concern is that the city council - despite the presence of some genuinely talented and committed public servants - doesn't appear to have an over-arching vision for Nottingham's economic future, and isn't seen knocking on departmental doors in Whitehall to press for help delivering it.
Other cities are, partly because they always have done, partly because they are responding to a widely held cross-party consensus that cities should be drivers of economic growth across their surrounding area.
This is why the tone struck by the no campaign has gone down badly in some influential quarters. It has failed to address the ambitions and concerns which lie behind some of the support for the yes campaign.
These are people who think growing the city economically and geographically presents the best long-term opportunity to overcome its notorious – but misleading – figures for poor education, poor skills and crime. In their eyes, a campaign built around ‘no change’ is the wrong answer to the questions the mayoral campaign has raised.
I don't think those questions will go away even if the idea of an elected mayor is rejected on Thursday. Government has also left the door open to further discussion about the city's boundaries, which probably hold the real key to addressing Nottingham's long-term economic and social ambitions.
If, of course, its leadership believes this kind of big picture vision really matters. For those whose views about the city transcend political allegiances, this latest leaflet is not an optimistic sign.
Monday 30 April 2012
Wednesday 25 April 2012
A political recession?
So, the UK is back in recession. Let’s all panic and head for the hills…
Or is it? There are four possible responses to today’s news that an initial estimate suggests the UK economy contracted by 0.2 per cent in the first three months of 2012.
One is political: government policy has failed and the coalition “cut too far and too fast”. The usual hot air, in other words.
The second is geographical: while London, the south and east have steamed ahead, the rest of the country never really climbed out of recession anyway (the further north you go, the more the economy becomes dependent on public money).
The third is scientific: quite a few economists and statisticians simply don’t believe the ONS figures because this general measure has been consistently at variance with what surveys about specific business sectors say. The ONS’s methodology may be a bit flawed.
The fourth is from business: how come the Office for National Statistics says the economy contracted 0.2 per cent when the Derbyshire & Nottinghamshire Chamber’s own survey of the same period said business had regained nearly everything it lost last year?
It really does pay to put the politics to one side, because in a climate like this it generates far more heat than light.
Not for the first time I should also point out that today’s figure is merely an initial estimate based on an analysis of only 40 per cent of the data which ultimately goes into a GDP figure. It will be revised at least three times, and for technical reasons the first quarter of a year is often harder to judge than others.
There is particular concern about the ONS’s assessment of the construction industry. It says weakness here is one of the key reasons for the fall back into recession. Yet the industry itself suggests the picture is not that bad.
And on the very same day that the ONS fingered weak manufacturing as another contributory factor for technical recession, the CBI said there were signs of a bounce back in manufacturing activity during the same period.
Indeed, the CBI has gone on record this morning with its usual diplomatic language, saying it is "surprised" by the ONS figures.
That's putting it mildly. There is a clear conflict between what the ONS is suggesting and what some industries are saying themselves.
Unarguable facts are that our economic recovery is very sluggish and geographically patchy: some sectors are doing better than others, some parts of the country are better than others, some of what we have lost won’t come back because the economy has changed, Eurozone economies still haven’t properly sorted their debt issues.
One more unarguable fact: businesses themselves are sick to the back teeth with supposed media ‘recession porn’ – an obsession with negative economic news.
So the fight over recession is largely political. As tough as it is, business is getting on with the job.
Or is it? There are four possible responses to today’s news that an initial estimate suggests the UK economy contracted by 0.2 per cent in the first three months of 2012.
One is political: government policy has failed and the coalition “cut too far and too fast”. The usual hot air, in other words.
The second is geographical: while London, the south and east have steamed ahead, the rest of the country never really climbed out of recession anyway (the further north you go, the more the economy becomes dependent on public money).
The third is scientific: quite a few economists and statisticians simply don’t believe the ONS figures because this general measure has been consistently at variance with what surveys about specific business sectors say. The ONS’s methodology may be a bit flawed.
The fourth is from business: how come the Office for National Statistics says the economy contracted 0.2 per cent when the Derbyshire & Nottinghamshire Chamber’s own survey of the same period said business had regained nearly everything it lost last year?
It really does pay to put the politics to one side, because in a climate like this it generates far more heat than light.
Not for the first time I should also point out that today’s figure is merely an initial estimate based on an analysis of only 40 per cent of the data which ultimately goes into a GDP figure. It will be revised at least three times, and for technical reasons the first quarter of a year is often harder to judge than others.
There is particular concern about the ONS’s assessment of the construction industry. It says weakness here is one of the key reasons for the fall back into recession. Yet the industry itself suggests the picture is not that bad.
And on the very same day that the ONS fingered weak manufacturing as another contributory factor for technical recession, the CBI said there were signs of a bounce back in manufacturing activity during the same period.
Indeed, the CBI has gone on record this morning with its usual diplomatic language, saying it is "surprised" by the ONS figures.
That's putting it mildly. There is a clear conflict between what the ONS is suggesting and what some industries are saying themselves.
Unarguable facts are that our economic recovery is very sluggish and geographically patchy: some sectors are doing better than others, some parts of the country are better than others, some of what we have lost won’t come back because the economy has changed, Eurozone economies still haven’t properly sorted their debt issues.
One more unarguable fact: businesses themselves are sick to the back teeth with supposed media ‘recession porn’ – an obsession with negative economic news.
So the fight over recession is largely political. As tough as it is, business is getting on with the job.
Monday 23 April 2012
Elected Mayors: The Vision Thing
 |
| Nottingham: trying to find a vision? |
There’s been a fascinating contribution today to the debate about whether Nottingham should vote for a directly elected mayor.
It’s from a Labour politician, and it’s in the ‘anti’ camp. But it doesn’t mention anything about ‘£1m Tory extra Mayors’ on ‘fatcat salaries’.
Infact, some are bound to view this support for the campaign against an elected mayor as a devastating critique of some of the people behind it.
The contribution comes from Alan Simpson, who was the Nottingham South Labour MP up until the last election, when he retired and the seat was taken by Lilian Greenwood.
Simpson was never a great mate of the city leadership, and there will be a few in Labour who think his piece settles a few old scores.
But there will be a lot of people involved in business, in particular in property and development, who will agree wholeheartedly with some of Simpson’s observations - even if they are actively supporting the pro-elected mayor campaign.
Indeed, those criticisms are probably the reason why they support it.
You can see Alan Simpson’s piece here. To cut to the chase, he argues that an elected mayor simply doesn’t address what he claims is the big issue in Nottingham politics: its lack of ambition and vision. While he acknowledges some significant achievements (like the tram), he points the finger at the city council leadership over its refusal to publish full details about finances and a lack of genuine, big picture imagination. He also takes a swipe at the Tories and the Lib Dems for ineffectual opposition (though I suspect city boundaries count against them).
Simpson says: “Good governance demands strong Opposition as well as visionary leadership. Nottingham has neither. This is the Council’s Achilles Heel. To demolish the case for a mayor, it must open its own books and then be more imaginative.”
He describes Nottingham as a “second division” city, and adds pointedly: “…we have to break from a culture of contentedness that holds the city back. Pride and ambition are not qualities you can claim for yourself, without inviting ridicule.”
This plays to one of the central criticisms of the ‘anti’ campaign: that its relentless focus on the negative demonstrates exactly that point about the absence of the vision thing. Where it could be pointing to achievement and ambition under the current system, or painting a picture of a dynamic future, it instead drones on about the cost of a mayor, the risk of corruption and who’s paying for the yes campaign.
The case for an elected mayor isn’t proven, and Simpson says cities need real power rather than real figureheads. In that context, he thinks an elected mayor would be a sideshow.
But in Nottingham the ‘marmite’ flavour of the current leadership and its failure to give voice to an alternative vision leave the Yes campaign in a potentially strong position. What is most likely to count against the Yes camp is an issue which should cause serious concern on both sides – voter apathy towards politics and politicians. The turnout looks like being low.
Nottingham has a tantalising opportunity to develop an ambitious and genuinely challenging vision for the future, and Alan Simpson’s painfully blunt critique suggests one is sorely needed – whichever system we have.
I go back to the point I made in my last blog: Nottingham needs to think bigger in terms of its boundaries. Simpson suggests those boundaries also appear to encircle the council’s vision like a philosophical wall – that the city’s very horizons are just not wide enough.
You decide which way is best to unlock the potential. It’s YOUR city.
Monday 16 April 2012
Elected mayors: Small debate, big issue
If you listen hard you can just about hear what passes for a debate about whether or not Nottingham should be one of those cities which has an elected mayor.
As far as I can see, much of the debate is in the blogosphere, which is probably a sign that the subject has so far caught the interest only of what you might call the chattering classes – business people, politicians and those who think stuff like this matters.
I’m not aware there is any great groundswell of interest in this debate. Chris Leslie, the MP for Nottingham East and Shadow treasury secretary, probably hit the nail on the head when he suggested that, whether you think it’s a good idea or not, people will struggle to see the structure of local government as a priority. Most will think it’s policy that matters – what you do, rather than how you do it.
That’s no reason not to talk about it, though, and the debate so far has been poor. The City Council’s position – that it would cost £1 million for a ‘Tory extra mayor’ – sidesteps the issue of whether an elected figurehead for the city would be a good thing or not and focuses on the usual tribal antagonism.
I’m not sure that’s a smart move, since it risks reinforcing the prejudices some people hold about the way the city is currently run. It’s too adversarial and doesn’t offer an alternative vision. The ‘debate’ appears to be heading to a depressingly reductive conclusion.
For what it’s worth, I’m not convinced that an elected mayor is the solution to all of Nottingham’s development problems. As I wrote in a column for the Nottingham Post (and as others have already observed), it is the city’s administrative boundaries – which go back decades – which really hold it back because they have put the control of one economic entity in the hands of a series of different councils.
This makes the development of that economic entity overly-complicated, and leaves the city council in particular spending far too much time making excuses for poor educational attainment, poor skill levels and poor crime figures.
The apparent severity of every single one of those problems is a direct result of an artificially tight boundary which excludes the suburban affluence and prosperity which balance those numbers in most other cities. It also puts an undue pressure on the city council to produce artificial evidence of swift progress 'solving' a problem which can never be sorted quickly.
A bigger city with impressive demography and achievement, a powerful economic entity which could be developed as a coherent force would put Nottingham in a far stronger position on the national and international stage. Its smallness and its knotty ‘problems’ would fade overnight.
Everybody in Nottingham knows this to be true, and so I suspect does the Department for Communities and Local Government. But a very wise civil servant told me that no one will do anything about it. National politicians won’t touch local government reorganisation because it would be complicated, expensive and take years to sort – in other words, they couldn’t take any credit for it in time for an election.
Local politicians won’t touch it out of a similar self-interest. A bigger city including affluent suburbs would almost certainly water down Labour’s tight control of the council, while also rendering numerous power centres in surrounding boroughs and districts redundant. And turkeys don’t vote for Christmas, do they?
So there is a bit of an irony in suggestions that the push for elected mayors is an attempt to free cities from their shackles and present them with an opportunity to make high-profile progress. It may well be – but only up to a point in Nottingham’s case.
Still, is something better than nothing? Without in any way being partisan, there has been significant concern in business circles for a long time about the city’s failure to punch its weight. That Broadmarsh remains undeveloped more than a decade after it was first mooted is a disgrace, and a portfolio of ambitious CGIs brought forth a grand total of nothing in two major regeneration zones during a once-in-a-lifetime development boom. Only now is the city’s planning department shaking off its reputation as a hurdle to development.
The city council will quite justifiably point to a good tram network which is going to be expanded still further as a clear example of its ability to deliver genuinely ambitious infrastructure projects which have the capacity to encourage the transformation of communities.
You can’t argue with that, and I wonder whether we really make enough of a £600m mass transit system and the economic benefits it might bring.
But if we can deliver that, why can’t we deliver other major projects?
To me, that begs two questions which may shed light on the mayoral debate. What are the city’s political priorities, and does it invest anywhere near enough time and effort in heavyweight engagement with senior civil servants and senior politicians in London?
If Nottingham can deliver a tram project, why couldn’t it muscle Broadmarsh over the line before Westfield walked away, and why couldn’t it get the wheels in motion on Eastside and Waterside? Why did we get poked in the eye over the super-connected cities project, a silly decision which smacked of wanting to teach Nottingham a political lesson? Are we really serious about big, visionary development?
Nottingham City Council’s political leadership holds strong and very clearly-defined views and has demonstrated a laudable commitment to tackling some serious social issues. It provides certainty where the ‘opposition’ is hopelessly disorganised.
But it sometimes appears to want to engage with the outside world only on its own terms. As my wise friend put it to me, you don’t get Whitehall buy-in by shouting in the Market Square.
Is this another reason why what we think is a big city is seen as small by others?
When you look at some of the UK’s really big cities, they are usually associated with big personalities who knock heads together and use powerful connections to get things done for their cities. Think Sir Richard Knowles and Sir Albert Bore, political leaders in Birmingham, Sir Richard Leese and Howard Bernstein, respectively the leader and chief executive in Manchester (the knighthoods are a clue to just how well-connected and respected these people are), Keith Wakefield and Tom Riordan, the current custodians in Leeds.
There’s also Sir Michael Lyons, the former Birmingham City Council chief exec who went on to become chairman of the BBC. And before that? He was chief exec of Notts County Council…
How about Nottingham? Up until Jane Todd’s arrival the chief executive’s office in Nottingham appeared to have a revolving door, and its leadership, while utterly committed to tackling problems in Nottingham, seems ambivalent about relationships outside it.
An elected mayor for Nottingham could be seen as a political fix, an attempt to cure the boundary issue by imposing another structure which sits above the old, boundary-driven muddle beneath.
But it may well be worth a try. Government has dropped heavy hints that it will use these offices to distribute resources and if Nottingham isn’t even sitting round the table we won’t be appearing in any announcements. That’s a hard, political fact. It leaves us stuck in second gear, still comparing ourselves to Derby and Leicester when we should be talking about where we are in relation to the likes of Leeds, Liverpool and Sheffield.
In that context, a debate about whether the city should have a “£1m Tory extra mayor” on a “fatcat salary” is hardly taking the visionary high ground of a big city. It risks being seen as a wearily tribal 'our way or no way' approach.
We have some huge opportunities in our city – no one should be in any doubt about that. But they can only be exploited through relationships outside the city. Have we really got the structure to deliver that?
You decide.
 |
| Can you hear the debate? |
As far as I can see, much of the debate is in the blogosphere, which is probably a sign that the subject has so far caught the interest only of what you might call the chattering classes – business people, politicians and those who think stuff like this matters.
I’m not aware there is any great groundswell of interest in this debate. Chris Leslie, the MP for Nottingham East and Shadow treasury secretary, probably hit the nail on the head when he suggested that, whether you think it’s a good idea or not, people will struggle to see the structure of local government as a priority. Most will think it’s policy that matters – what you do, rather than how you do it.
That’s no reason not to talk about it, though, and the debate so far has been poor. The City Council’s position – that it would cost £1 million for a ‘Tory extra mayor’ – sidesteps the issue of whether an elected figurehead for the city would be a good thing or not and focuses on the usual tribal antagonism.
I’m not sure that’s a smart move, since it risks reinforcing the prejudices some people hold about the way the city is currently run. It’s too adversarial and doesn’t offer an alternative vision. The ‘debate’ appears to be heading to a depressingly reductive conclusion.
For what it’s worth, I’m not convinced that an elected mayor is the solution to all of Nottingham’s development problems. As I wrote in a column for the Nottingham Post (and as others have already observed), it is the city’s administrative boundaries – which go back decades – which really hold it back because they have put the control of one economic entity in the hands of a series of different councils.
This makes the development of that economic entity overly-complicated, and leaves the city council in particular spending far too much time making excuses for poor educational attainment, poor skill levels and poor crime figures.
The apparent severity of every single one of those problems is a direct result of an artificially tight boundary which excludes the suburban affluence and prosperity which balance those numbers in most other cities. It also puts an undue pressure on the city council to produce artificial evidence of swift progress 'solving' a problem which can never be sorted quickly.
A bigger city with impressive demography and achievement, a powerful economic entity which could be developed as a coherent force would put Nottingham in a far stronger position on the national and international stage. Its smallness and its knotty ‘problems’ would fade overnight.
Everybody in Nottingham knows this to be true, and so I suspect does the Department for Communities and Local Government. But a very wise civil servant told me that no one will do anything about it. National politicians won’t touch local government reorganisation because it would be complicated, expensive and take years to sort – in other words, they couldn’t take any credit for it in time for an election.
Local politicians won’t touch it out of a similar self-interest. A bigger city including affluent suburbs would almost certainly water down Labour’s tight control of the council, while also rendering numerous power centres in surrounding boroughs and districts redundant. And turkeys don’t vote for Christmas, do they?
So there is a bit of an irony in suggestions that the push for elected mayors is an attempt to free cities from their shackles and present them with an opportunity to make high-profile progress. It may well be – but only up to a point in Nottingham’s case.
Still, is something better than nothing? Without in any way being partisan, there has been significant concern in business circles for a long time about the city’s failure to punch its weight. That Broadmarsh remains undeveloped more than a decade after it was first mooted is a disgrace, and a portfolio of ambitious CGIs brought forth a grand total of nothing in two major regeneration zones during a once-in-a-lifetime development boom. Only now is the city’s planning department shaking off its reputation as a hurdle to development.
The city council will quite justifiably point to a good tram network which is going to be expanded still further as a clear example of its ability to deliver genuinely ambitious infrastructure projects which have the capacity to encourage the transformation of communities.
You can’t argue with that, and I wonder whether we really make enough of a £600m mass transit system and the economic benefits it might bring.
But if we can deliver that, why can’t we deliver other major projects?
To me, that begs two questions which may shed light on the mayoral debate. What are the city’s political priorities, and does it invest anywhere near enough time and effort in heavyweight engagement with senior civil servants and senior politicians in London?
If Nottingham can deliver a tram project, why couldn’t it muscle Broadmarsh over the line before Westfield walked away, and why couldn’t it get the wheels in motion on Eastside and Waterside? Why did we get poked in the eye over the super-connected cities project, a silly decision which smacked of wanting to teach Nottingham a political lesson? Are we really serious about big, visionary development?
Nottingham City Council’s political leadership holds strong and very clearly-defined views and has demonstrated a laudable commitment to tackling some serious social issues. It provides certainty where the ‘opposition’ is hopelessly disorganised.
But it sometimes appears to want to engage with the outside world only on its own terms. As my wise friend put it to me, you don’t get Whitehall buy-in by shouting in the Market Square.
Is this another reason why what we think is a big city is seen as small by others?
When you look at some of the UK’s really big cities, they are usually associated with big personalities who knock heads together and use powerful connections to get things done for their cities. Think Sir Richard Knowles and Sir Albert Bore, political leaders in Birmingham, Sir Richard Leese and Howard Bernstein, respectively the leader and chief executive in Manchester (the knighthoods are a clue to just how well-connected and respected these people are), Keith Wakefield and Tom Riordan, the current custodians in Leeds.
There’s also Sir Michael Lyons, the former Birmingham City Council chief exec who went on to become chairman of the BBC. And before that? He was chief exec of Notts County Council…
How about Nottingham? Up until Jane Todd’s arrival the chief executive’s office in Nottingham appeared to have a revolving door, and its leadership, while utterly committed to tackling problems in Nottingham, seems ambivalent about relationships outside it.
An elected mayor for Nottingham could be seen as a political fix, an attempt to cure the boundary issue by imposing another structure which sits above the old, boundary-driven muddle beneath.
But it may well be worth a try. Government has dropped heavy hints that it will use these offices to distribute resources and if Nottingham isn’t even sitting round the table we won’t be appearing in any announcements. That’s a hard, political fact. It leaves us stuck in second gear, still comparing ourselves to Derby and Leicester when we should be talking about where we are in relation to the likes of Leeds, Liverpool and Sheffield.
In that context, a debate about whether the city should have a “£1m Tory extra mayor” on a “fatcat salary” is hardly taking the visionary high ground of a big city. It risks being seen as a wearily tribal 'our way or no way' approach.
We have some huge opportunities in our city – no one should be in any doubt about that. But they can only be exploited through relationships outside the city. Have we really got the structure to deliver that?
You decide.
Thursday 12 April 2012
Nottinghamshire's Icelandic saga
Another misleading claim today about the attempts by local authorities to recover the money they lost when the Icelandic banking system went bust in the crunch.
If you remember, local authorities across the country had invested vast sums in Icelandic banks which were offering returns on investment accounts which seemed too good to be true when you factored in the size of the economy underneath them.
The Nottingham Building Society had reached that conclusion in 2006, placing its treasury investments elsewhere.
Unfortunately, councils continued to put money into Iceland because the investment rules they adhered to never included a measure of the size of a banking system relative to an economy – and Iceland’s was way out of proportion with the ability of its lender of last resort (i.e., the Icelandic government) to meet all liabilities if the banks went belly up.
Local authorities looked no further than the credit ratings of the banks. Hindsight tells us this wasn’t a rigorous enough analysis, as we now know the ratings agencies had unhealthily close relationships with the banks at the time.
Among those left standing at the altar was Nottingham City Council (which had more than £30 million in Iceland) and Newark and Sherwood District Council, which had a more modest £2 million.
Newark and Sherwood has sought to suggest today that it has now got back 80 per cent of its money.
What it neglects to say is that it has almost certainly lost money in the process.
How? Two reasons – the money was put into an interest-bearing account and never received any, so an investment under-performed. Secondly, any sum of money frozen in an account for any length of time loses money through depreciation. Newark & Sherwood’s £2m went on deposit in January 2008, so that’s four years of value eaten away by inflation.
There will also have been some exchange rate costs, because the £2m was held in a variety of different currencies, ranging from sterling to euros.
So the council may have got back 80 per cent of the original capital sum, but because it is now worth less than it was they will never get back the 2012 equivalent of £2m unless some interest-based compensation is paid.
Local authorities and the Local Government Association have sought to suggest that we needn’t worry about this unfortunate episode because their brave battle to get the money back will result in recovery of all the cash.
That’s disingenuous. Cash, perhaps, but value? Almost certainly not.
These were poor investments and you can’t get away from the irony of Nottingham City Council continuing to invest in Iceland when a financial institution less than a mile away had concluded it no longer made sense to do so.
Councils fell victim to a poor set of rules and a tendency to believe that if they were following the same rules as everyone else nothing was likely to go wrong.
I’m not aware that any council or the LGA ever crash-tested these investment rules. Have they done so with what are presumably amended and improved guidelines?
As for Newark & Sherwood District Council, it invested in Iceland expecting to receive a measureable amount of interest. Its council minutes (where information about the refund is contained) don’t say what that sum was.
The council will get some interest – 3.35 per cent will be paid on the remaining £356,000, which is currently held as Icelandic krona in Iceland. That won’t match the losses, though.
Councils need to be straight about this because pretending a problem has been solved helps no one. They were far from alone in making expensive mistakes during the boom – the professional financial institutions which organised these investments were guilty of incompetence of historic proportions.
Councils are custodians of public money and we expect them to use it wisely. So what safeguards are in place now? And are they absolutely sure these safeguards are effective?
If you remember, local authorities across the country had invested vast sums in Icelandic banks which were offering returns on investment accounts which seemed too good to be true when you factored in the size of the economy underneath them.
The Nottingham Building Society had reached that conclusion in 2006, placing its treasury investments elsewhere.
Unfortunately, councils continued to put money into Iceland because the investment rules they adhered to never included a measure of the size of a banking system relative to an economy – and Iceland’s was way out of proportion with the ability of its lender of last resort (i.e., the Icelandic government) to meet all liabilities if the banks went belly up.
Local authorities looked no further than the credit ratings of the banks. Hindsight tells us this wasn’t a rigorous enough analysis, as we now know the ratings agencies had unhealthily close relationships with the banks at the time.
Among those left standing at the altar was Nottingham City Council (which had more than £30 million in Iceland) and Newark and Sherwood District Council, which had a more modest £2 million.
Newark and Sherwood has sought to suggest today that it has now got back 80 per cent of its money.
What it neglects to say is that it has almost certainly lost money in the process.
How? Two reasons – the money was put into an interest-bearing account and never received any, so an investment under-performed. Secondly, any sum of money frozen in an account for any length of time loses money through depreciation. Newark & Sherwood’s £2m went on deposit in January 2008, so that’s four years of value eaten away by inflation.
There will also have been some exchange rate costs, because the £2m was held in a variety of different currencies, ranging from sterling to euros.
So the council may have got back 80 per cent of the original capital sum, but because it is now worth less than it was they will never get back the 2012 equivalent of £2m unless some interest-based compensation is paid.
Local authorities and the Local Government Association have sought to suggest that we needn’t worry about this unfortunate episode because their brave battle to get the money back will result in recovery of all the cash.
That’s disingenuous. Cash, perhaps, but value? Almost certainly not.
These were poor investments and you can’t get away from the irony of Nottingham City Council continuing to invest in Iceland when a financial institution less than a mile away had concluded it no longer made sense to do so.
Councils fell victim to a poor set of rules and a tendency to believe that if they were following the same rules as everyone else nothing was likely to go wrong.
I’m not aware that any council or the LGA ever crash-tested these investment rules. Have they done so with what are presumably amended and improved guidelines?
As for Newark & Sherwood District Council, it invested in Iceland expecting to receive a measureable amount of interest. Its council minutes (where information about the refund is contained) don’t say what that sum was.
The council will get some interest – 3.35 per cent will be paid on the remaining £356,000, which is currently held as Icelandic krona in Iceland. That won’t match the losses, though.
Councils need to be straight about this because pretending a problem has been solved helps no one. They were far from alone in making expensive mistakes during the boom – the professional financial institutions which organised these investments were guilty of incompetence of historic proportions.
Councils are custodians of public money and we expect them to use it wisely. So what safeguards are in place now? And are they absolutely sure these safeguards are effective?
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