Examination of Witnesses (Questions 100-119)
MR MIKE
WEAVER, MR
PETER ANTILL
AND MR
ALAN CROSS
26 JANUARY 2009
Q100 Mr Betts: But I understand that
at least some of your members, I think one authority, notified
us that they were still getting advice to invest in September.
I think Restormel Borough Council actually put investments in
Icelandic banks on the advice of their advisers as late as September.
Does that surprise you?
Mr Antill: Yes.
Mr Weaver: Yes.
Q101 Mr Betts: You begin to wonder,
do you not, whether you might all have been better, perhaps apart
from Reading authority which got that different advice, to have
simply paid one of your middle managers to read the Financial
Times in his lunch break? You might actually have done better
on the basis of that.
Mr Antill: I would say I think
the financial markets are more complex than that.
Q102 Mr Betts: But there were articles
in the FT and other financial press saying, "Don't"
and "Be careful."
Mr Antill: Absolutely. I think,
as Mr Weaver has said, it is about taking the whole picture and
it is about being careful.
Q103 Mr Betts: The contracts that
you have with these organisations, are they generally pretty standard
contracts as far as you are aware? You are just sort of given
the contract and you basically sign up to it on that basis?
Mr Antill: They are very similar.
We have used different agencies or advisers before and had very
similar contracts.
Mr Weaver: I would just add that
typically there would be a competition held to award this work,
so there would be a specification of the service which is required,
quotations will be obtained and appointment will be made on the
basis of interview. I have got Worcestershire's contract here
and certainly it contains the words "advise on", "advise
on", "advise on". That is not as far as saying,
"Do this, do that, do the other," but certainly I think
if you looked at the language which is used in the contract that
we have got, we are expecting the provision of information to
complement the work we are doing ourselves to interpret the treasury
management market we are operating in.
Q104 Mr Betts: Did that advice amount
to more than simply passing on the information from a credit rating
agency?
Mr Weaver: I think it does. I
think you are looking at how the firm concerned is interpreting
the market environment we are all working in. They are there,
in my view, to complement the internal team; they are not there
to replace the internal team. If we wanted to outsource the treasury
management function, it would be a different sort of contract
with different sorts of performance measures and different sorts
of costs. Here we are talking about acting as a cross-check on
the internal team, acting as a sounding board and relaying information
to us.
Q105 John Cummings: Have you ever
had occasion to ignore the advice from these advisers?
Mr Weaver: My colleagues must
speak for themselves, but on occasion we would form our own view
when we do not agree.
Q106 John Cummings: Have you done
that?
Mr Weaver: Yes.
Q107 Chair: On the basis of what
expertise do you take a contrary view?
Mr Weaver: On the basis that we
are statutorily responsible for handling the cash. This is not
an outsourcing of work. The treasury management team, more typically
in the county just by the size of the organisation, will be able
to recruit accountants who have got expertise in this. At Worcestershire
we have three accountants, qualified accountants who have been
schooled in treasury management. This will not be the sort of
work which is left to clerks or accounting technicians; there
will be a high level of supervision.
Q108 Chair: How much do you have
to pay those sorts of accountants?
Mr Weaver: The team leader I think
would be around £40k, the accountants doing the work on a
day-to-day basis, between £25k, £30k, £35k. But
however sharp we might think the in-house team is, they too are
fallible and so I use the advisers as a way of cross-checking
on our own thought processes.
Q109 John Cummings: What sort of
fee do the advisers command?
Mr Weaver: Again, I cannot speak
for colleagues and I cannot speak for other counties. I can speak
for Worcestershire and the value of our contract with Sector is
£13,000 a year.
Q110 Mr Betts: What about the other
authorities?
Mr Antill: Less than that, about
half of that.
Mr Cross: The figure might be
commercially confidential, but it is in that range.
Q111 Chair: Which one, the smaller
or the higher one as a unitary?
Mr Cross: I think in between the
two.
Chair: That is extremely tactful!
Q112 Mr Betts: Would the same be
true of Tewkesbury then in terms of not relying on the advice?
Presumably you have got less of a team because you are a smaller
authority? Do you place more reliance on them then?
Mr Antill: We probably do, if
I am honest, but it is advice and sometimes you discuss with your
advisers and you get choices and you get options, whether to invest
on a longer term basis because that is the projection on interest
rates, or a short-term basis. It is a discussion you have with
your advisers, but we do as a district tend to perhaps rely on
their advice more so than a larger team.
Q113 Mr Betts: Could I just ask two
further things? We have talked about the Code of Practice before.
We think in hindsight now the Code of Practice ought to say a
bit more about the appointment of external advisers and what you
should be looking at in terms of reliance on what they say and
what you cannot really rely on. Is this an area where the Code
ought to be more explicit on guidance?
Mr Cross: I am not sure it is
something for the Code itself. It may be there is a place for
a bit more guidance in that area.
Mr Weaver: I think my own view,
as a member of the Treasury Management Panel, is that it is time
to take stock and to learn lessons. The Audit Commission is doing
an extensive piece of work. They will complete the field work
this week and I would expect their national study to be reported
in a couple of months' time and I think when we get the results
of that work, their findings, their conclusions and their recommendations,
CIPFA will be reflecting on its professional guidance that it
gives, whether it be through a supplementary guidance or through
the actual Code itself.
Q114 Mr Betts: Do you think there
is a case for maybe small authorities joining together to see
if they can deal with more of the work themselves, or for a body
like the Public Works Loan Board or the Debt Management Operators,
or some other public sector body to assist with this process?
There was a suggestion that it might be the Audit Commission,
but perhaps they advise themselves on this matter, so it is probably
not the best suggestion, but certainly a public sector body. Would
there be a welcome, particularly with the smaller authorities,
for somewhere else to go in the public sector to get help with
these issues?
Mr Antill: We would welcome any
extra advice or help they can give and I think it is a fair point
about districts working together and perhaps sharing expertise
more. I think it has drawn our attention perhaps to the need to
do that.
Q115 Anne Main: You did actually
mention the fact that you had an investment in the Icelandic bank
that was a fixed term and then you also referred just now in your
remarks that you had options in terms of longer term investments.
How reactive then can a smallish district council be if it has
made some long-term commitments? What I am concerned about is
that it does not matter what you put in place as guidance if a
district council has taken the options of longer or fixed term
investments, it is very hard to react to the volatility we have
had?
Mr Antill: I think you are absolutely
right. We took an investment out in January. It was due to be
repaid on 15 October, so we were a fraction short of getting it
repaid in any case. So during that period we knew that Icelandic
banks were coming under more pressure, so the position was acute
to us. We were watching daily their progress.
Q116 Anne Main: Was there an option
for you to get out of that fixed term contract? Could you have
made that decision? I am just trying to find out if there was
the ability to do that.
Mr Antill: Well, they would not
have repaid it. That was the issue. It was fixed term for nine
months, so it is due back in October. We have had investments
with other organisations for two to three years and it is about
having a balanced portfolio because we have both long-term investments
for our reserves, as Mr Weaver has said, and also as a district
council we collect the council tax and the business rates and
we have short-term investments where we are holding those before
we pay them over, so our portfolio ranges from money on call for
one day to money on three years.
Q117 Anne Main: The point I am getting
at is that it is pointless updating the status of a particular
investment or bank if when you have got a fixed term investment
you cannot get out of it anyway?
Mr Antill: Well, you may be able
to get out of it, but there may also be a penalty to pay.
Chair: Can we just move on to the last
few questions, which are about any potential government help?
Q118 John Cummings: Do you think
that the Government should protect local authorities inasmuch
as their investments in the same way they do for individuals?
Mr Antill: That would be nice!
Q119 John Cummings: Is that a yes
or no?
Mr Antill: If that is an offer,
I will take it up! It is a million pounds at Tewkesbury. I can
see the Government having difficulty protecting the investments
and the letter from the Minister said that there will be no guarantees,
but I do think this is unprecedented, certainly in my limited
experience, and I think it will be difficult for local authorities.
If impairment means that we have to suffer the losses to our revenue
accounts, i.e. over one year, that is going to be extremely difficult
for any authority to manage, but for a district council to write
its losses off over one year will be exceptionally difficult.
I think we need help on that front.
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