The state and local government
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- 635 Conversely, according to COSLA President Pat Watters – as there was ‘ not one single additional penny’ – the settlement would be ‘a
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Alex Salmond, on 3 September 2008, announced the SNP’s legislative programme for the next year, including their LIT Bill, which the Scottish TUC general secretary Graham Smith said represents poor economics, diminishes democracy and accountability and allows those living off unearned income to avoid contributing to the delivery of local services…removing the property-based component will only exacerbate the already prodigious levels of tax avoidance in the taxation system.631 The minority SNP government who must win support from the Liberal Democrats (who want councils to set tax rates) and the Greens – saw its prospects of pushing the measure through increase when the new Scottish Liberal Democrat leader, Tavish Scott, signalled he would hold talks with the SNP and might offer them a deal whereby councils would be allowed the freedom to set their rates a few years after the national rate is introduced.632 Nevertheless, as Simon Jenkins pointed out – since even ‘the most favourable analysis suggests that 3p on incomes will leave a £750 million gap after the removal of the council tax’ – the ‘requisite level would need to be about 4.5p’: which ‘is above the Edinburgh parliament’s discretion, and London is unlikely to move on this’.633 However, faced with mounting opposition from most of civic Scotland, prospective cuts of £1 billion to the Scottish Government budget from Westminster and the absence of Parliamentary support, SNP Finance Secretary John Swinney on 11 February 2009 announced in the Scottish Parliament that the Cabinet had decided to withdraw its flawed LIT proposal: Across the public sector we are dealing both with a squeeze on public spending – reflected by the worst settlement for the Scottish Government since devolution – and the impact of the global downturn. But against that back drop we have acted to protect the Scottish Government's funding for local government services - and the shared outcomes that those services will deliver. The Cabinet has therefore decided not to introduce legislation to abolish the unfair Council Tax and replace it with a local income tax until after the election in 2011. But make no mistake, this government will fight that election to win a parliamentary majority that backs the abolition of the unfair council tax. And we look forward to a financial environment at that time more suitable to the introduction of a fairer local income tax.634 The Local Government Finance Act 1992 (Scotland) Order 2009 provided Scottish local government in 2009-10 with total funding of more than £11.8 billion: which, according to John Swinney was an increase of £658 million or 5.9 per cent over the comparable sums for 2008-09. It included total revenue funding of £10.8 billion and support for capital expenditure of more than £1 billion. ‘Compared to 2007-08’, he added the total funding that this Government is providing to local government in 2009-10 will have increased by £1.2 billion, or 11.1 per cent. The package includes a further £70 million which is – as it was for 2008-09 – to help local authorities freeze council tax levels again in the forthcoming financial year. It also includes specific grant funding of £820 million, mainly for police services, with the distribution of a further £124 million still to be confirmed.635 Conversely, according to COSLA President Pat Watters – as there was ‘not one single additional penny’ – the settlement would be ‘a standstill at best.’636 And following the passing of the SNP's 2010-11 budget and the formation of the Con-Lib Dem government , as shown in Chapter 14, the situation is far worse with around 30,000 public sector jobs expected to be cut in Scotland over the next four years.637 Chilling effects of the Icelandic banks collapse saga Iceland, according to the Audit Commission, was the first and, so far, only country, to see the collapse of its entire banking sector. In early October 2008, Iceland’s three largest commercial banks, Glitnir Bank hf, Kaupthing Bank hf and Landsbanki Islands hf, together with their UK registered subsidiaries, Heritable Bank plc and Kaupthing, Singer & Friedlander Ltd, went into administration. Press reports suggest that the failure of the Icelandic banks has put at risk approximately £11 billion in deposits made by UK investors, in addition to the £4.3 million refunded to retail depositors by compensation schemes.638 The level of reserves held by local English local authorities has more than doubled in recent years – from £5.5 billion (8 per cent of their annual expenditure) in 2003 to £12.6 billion (13 per cent of their annual expenditure) in March 2008.639 Local authorities draw an income from surplus cash, by placing it on deposit in bank or building society accounts, or in money market investments. The amounts invested have doubled in the past decade; and at the end of March 2008, local authorities held deposits totalling £29 billion, compared with £15 billion in March 2000. On 7 October 2008, 451 local authorities held deposits worth £31 billion.640 That is, the sums deposited far exceed reported reserves. Moreover, some funds ‘come from money borrowed in advance of need in order to take advantage of favourable interest rates, or from not repaying debt despite having the cash to do so’; and for ‘some small local authorities, budgeted income from interest has equalled the amount realised from council tax receipts in recent years.’641 Of the 127 English local authorities with Icelandic deposits 105 are local councils; and this does not include pension funds administered by local authorities (see Table 8.5). English councils, police, fire and rescue, passenger transport, national parks, pensions and waste authorities hold deposits worth £953.53 million in two of the three failed Icelandic banks (Glitnir and Landsbanki) or their British subsidiaries (Heritable and KSF); and over £200 million of the investment was scheduled to mature in October 2008. Of the 127 local authorities that are affected, councils have the largest exposure, with 105 holding deposits worth more than £793 million. The other 22 are police, fire and rescue and passenger transport, national parks, pension and waste authorities, which between them hold deposits of almost £160 million.642 Nine local authorities in Wales and eight in Scotland, as the Local Government Association also noted, have deposits in Icelandic banks.643 Table 8.5: English local authorities with Icelandic bank deposits
[a] Fire and rescue authorities, passenger transport bodies, national parks, pension authorities and waste authorities Source: Audit Commission, 2009, p. 18 Table 8.6: Local authorities that missed the warning signs of the Icelandic bank collapse
Source: Audit Commission, 2009, Table 3, p. 28 Landsbanki) or their British subsidiaries (Heritable and KSF); and over £200 million of the investment was scheduled to mature in October 2008. Of the 127 local authorities that are affected, councils have the largest exposure, with 105 holding deposits worth more than £793 million. The other 22 are police, fire and rescue and passenger transport, national parks, pension and waste Fourteen councils (Somerset County Council, Bassetlaw District Council, Breckland Council, Derwentside District Council, Lancaster City Council, Mid Devon District Council, Oxford City Council, Reigate and Banstead Borough Council, Restormel Borough Council, South Ribble Borough Council, Uttlesford Borough Council, Wyre Forest District Council, Barnet London Borough Council and the London Borough of Hillingdon) deposited more in Icelandic banks than their reserves. Nine more councils (Braintree District Council, Chorley Borough Council, Daventry District Council, Great Yarmouth Borough Council, Ipswich Borough Council, Purbeck District Council, Rushmore Borough Council, Vale of White Horse District Council and West Lindsey District Council) also had deposits in Icelandic banks equal to their reserves.644 And seven local authorities – despite the change in credit ratings on 30 September 2008 for Icelandic banks – deposited a further £32.8 million over the next few days (see Table 8.6). These deposits breached local treasury management policies. The explanations for the breaches include: not opening an email from the treasury adviser that warned of the rating change; using a different approved lending or counterparty list to that used by the treasury adviser; and an officer placing a deposit that exceeded the local authority’s investment limit for a single institution.645 Moreover, ‘local authorities with the largest sums at risk tended to have weak governance and scrutiny arrangements, were overly dependent on external advice and failed to consider adequately the risks associated with their decisions.’646 The Audit Commission, despite its above criticisms of councils, did not play an active role as they struggled to come to terms with the full implications of the collapse of the Icelandic banks. Moreover, on 16 October 2008 the Commission, confirmed that it, too, had been caught out by events, with £5 million invested in Landsbanki in April 2008, and a further £5 million put into Heritable Bank as recently as July 2008. Commission chairman, Michael O’Higgins, defended the deposits as part of a tranche of 11 investments totalling some £55 million made over the past year and spread between different institutions; and, like the councils O’Higgins oversees, he stressed the Commission’s commitment to ‘maximise returns on its working reserves’.647 Dr. Phyllis Starkey, a member of the Commons Communities and Local Government Select Committee, told the File on Four programme in March 2009 that the Commission - who refused to be interviewed by the BBC - had failed to fulfil its responsibilities and had violated its own code by not getting proper authorisation for these loans.648 Local government has had financial problems in the past, with the collapse of the Bank of Credit and Commerce International and the Municipal Mutual Insurance in the early 1990s, but the Icelandic situation has to been seen in the context of capitalism’s unprecedented global financial crisis. ‘Across the United Kingdom, the United States and euro area’, according to the Bank of England’s October 2008 Financial Stability Report, since the start of 2007 the ‘losses are now estimated to be around $2.8 trillion’ (£1,700 billion): which is more than Britain’s annual GDP, or three times our total annual public expenditure, or 85 per cent of the banks’ core Tier 1 capital (mainly shareholders’ equity) before the crisis, or the wealth of 100 Oleg Deripaskas.649 The deal negotiated in Reykjavik on 12 October 2008 by Bank of England, Treasury and Financial Services Authority officials to protect private investors did not cover the charities, councils and other public bodies with investments in Icelandic banks.650 On 5 January 2010 – even though the British and Dutch governments compensated individual savers who lost money when Icesave’s parent, Landsbanki, filed for bankruptcy and Iceland’s parliament narrowly approved an amended bill to repay more £3.4 billion to Britain and the Netherlands – Iceland’s president refused to sign the bill, which would burden each citizen with a debt of €12,000 including interest. In a referendum held on 20 February 2010 93.2% voted against this legislation.651 In England, Scotland and Wales, therefore, it is still far from clear what the exact financial consequences of the Icelandic investment saga will be for local authorities. The Audit Commission claims that: There is no evidence as yet that the sums at risk in the Icelandic banks will lead to service cuts or to council tax rises and it is unlikely that the performance of local government will be affected in the short or medium term.652 A statutory override, which makes amendments to the 2003 Capital Finance Regulations, came into effect on 31 March 2009. The measure allows local authorities to defer recognition of any potential losses arising from investments until 2010/11.653 However, as the Audit Commission also states: The spending plans of some local authorities will be materially affected by reduced rates of return from invested funds as a result of interest rate cuts. Indeed, one local authority has already cut services as it overestimated investment returns in 2007/08, during which time interest rates were rising.654 Due to capitalism’s crisis falling revenue and returns on investments are leading to cuts in services and jobs. For example, Nottingham City Council lost £¾ million in predicted car parking revenue because people were shopping less in the financial year 2008/09655; box office takings at the Theatre Royal were down by £200,000; planning fees fell by £120,000; and property rental income was £½ million less than expected. Conversely, spending on child protection and the disabled increased. Nottingham also had £41.4 billion invested in Icelandic banks and lost £2.3 billion in interest payments.656 Hence care homes and related services were closed to make £20 million savings and balance the books. Wyre Forest District Council – with £9 million invested in Icelandic banks and that lost interest payments of £400,000657 – had to make £2 million savings.658 Kent County Council deposited £48.9 million in Iceland – the largest single sum from a council.659 As Kent County Council officials prepared to make a £3.3 million deposit into an Icelandic bank, an e-mail from the council's financial consultants with warnings which should have prevented the transaction, languished unopened in an official's inbox. The money, as Table 8.6 shows, was deposited on 1 October 2008 together with another £5 million on 2 October 2008 – days before the Icelandic banking system went into meltdown. Kent then commissioned PricewaterhouseCoopers (PWC) to review its investment policies and procedures. PWC found that previous warnings in 2006 on the need for improvements by the authority’s internal auditors had been ignored. Butlers, which has more than 140 local authority clients was the firm informing Kent that credit ratings for Icelandic banks had slipped just days before the crash. However Butlers maintain it was providing information not advice to councils. Its Managing Director Chris Anthony told the Communities and Local Government Select Committee inquiry: We pass the information onto our clients with regard to credit ratings. We keep them fully informed....and we believe that with all the information they have at their fingertips as professional investors they should be able to make the decisions themselves.660 The other two government approved financial advisors used by local authorities are Sector Treasury Services Limited, which is part of the Capita Group plc, and Arlingclose Limited. Meanwhile for the councils with cash trapped in Iceland the future looks bleak according to Mark Horsfield – who since 2006 has been warning of the dangers of investing in Icelandic banks – of Arlingclose: which offers investment advice to more than 50 councils. Horsfield has been tracking the market in unsecured debt linked to the banking collapse. "It is trading at the moment somewhere between half a pence in the pound and nine-and-a-half pence in the pound," he told File On 4, dashing local government hopes of getting their money back in the months to come. Horsfield further stated that this was a "reasonable indicator" of the likely payout unless "a deal is structured" between governments and the liquidator; and he thinks it is unlikely that councils will receive significant payouts. "As an accountant with my prudent hat on, I'd be scaling back my expectations," he added.661 Hence local authorities – who have been given an accounting holiday for a year by the government, which does not apply to bank interest losses – will have to write off their investment losses in 2010 just when cuts in public sector borrowing begin. Finally, as the confidence of councils in banks plummeted, local government deposits in the Treasury backed Debt Management Agency Deposit Account Facility (DMADF) rocketed more than tenfold following the collapse. In October 2008, local authorities placed no less than £10.1 billion into a government account specifically for councils. This figure was the first evidence that local government is carrying out its threat to abandon the private banking system following ministers' refusal to guarantee their deposits in Icelandic banks.662 The government’s stance on local authority’s losses – in contrast to its bail out of private banks – was replicated by the Treasury Select Committee in April 2009 when it stated: We acknowledge that some local authorities will feel hard done by as a consequence of the limitations of Government support for them. Local authorities are required to take their own decisions on the level of prudent, affordable capital investment. They have a duty to the taxpayer diligently to protect the money they are investing on their behalf. Some authorities have shown themselves to be better than others in this regard. Under these circumstances it would seem perverse to reward those authorities who failed to protect their investment with yet more money from the taxpayer.663 The Communities and Local Government Committee Report on Local Authority Investments in June 2009 rejected Mark Horsefield’s advice – that local authorities should ‘not invest in any banks or building societies’ and only put their funds in the DMADF – in favour of the Chartered Institute of Public Finance and Accountancy’s argument that it pays much lower rates of interest and ‘returns on investments are usually an important source of local authorities' revenues’.664 And furious Local Government Association officials threatened legal action over a decision not to give English councils priority creditor status on the recovery of investments in failed Icelandic banks – since without such status councils could now receive only 25 per cent of their deposit back.665 Local Authority Investments did recommend that the Financial Services Authority (FSA) take a more active role in the regulation of treasury management advisers and the private sector companies which offer local authorities advice, however. Moreover, the Committee’s Report on Local authority investments: the role of the Financial Services Authority in January 2010 concluded that legislative change is necessary to ensure that these advisers are effectively regulated because they are ‘effectively unregulated’ Yüklə 5,87 Mb. Dostları ilə paylaş:
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