Examination of Witnesses (Questions 200-208)
MR MARK
HORSFIELD, MR
CHRIS ANTHONY
AND MR
DAVID WHELAN
26 JANUARY 2009
Q200 Chair: Significantly more?
Mr Horsfield: More than the sum
quoted earlier!
Mr Whelan: Would you mind repeating
the question?
Q201 Chair: The person within a big
county council who is actually responsible for the council's investment
decisions and therefore has to make these decisions which your
advice feeds into was paid £40,000 a year. I was asking how
much you paid the person in your organisation who is responsible
for the advice these councils are relying upon.
Mr Whelan: I am sorry, I have
to respond on the basis that that is confidential information.
Q202 Chair: Right. Is it more or
less than £40,000?
Mr Whelan: We have a range of
staff. The senior professionals are on more than £40,000
a year, yes.
Q203 Mr Betts: Let us be absolutely
clear. Your organisations with your clients perform the service
that you do. Do you ever give any advice or guidance as to which
brokers they should use to put their investments through?
Mr Anthony: No, we do not.
Q204 Mr Betts: I just wonder whether
any of you or anybody in your organisation feels like following
the example of the Icelandic Prime Minister?
Mr Anthony: No, or the Cabinet
for that matter.
Chair: Have they all gone? Or putting
themselves up for election either, I imagine. There is just one
final question, I think.
Q205 Jim Dobbin: Just before I ask
my question, Chairman, it has been a really fascinating session,
this, and if I could describe it as a Scottish court where the
verdicts are guilty, not guilty or not proven, as a judge I would
have to apply a verdict of not proven because I am totally confused
at the end of this whole session as to what you actually do! Could
I ask the last question? This is to Mr Horsfield and Mr Anthony.
Just what are your views on the use of derivatives by local authorities,
and why?
Mr Horsfield: Why they should
be allowed to use them?
Chair: Or not.
Q206 Jim Dobbin: Or not, whatever.
We are just asking for your views.
Mr Horsfield: I think they have
a very important role in risk control, but I do not think they
are an appropriate instrument to be looking at using by local
authority officers at this particular point in time in this environment.
But if we compare treasury management arrangements within corporates
compared with local authorities, I think you will find that corporates
have a much wider use of derivatives, but we do have some. If
I may just expand that slightly. Within our submission we do think
there is an important recommendation that we would hope the Committee
would take on to the Department of Communities and Local Government,
to make a very modest adjustment to the regulations which we think
would assist local authorities greatly in their investment activities
in this particular environment.
Q207 Chair: Could I ask you, because
I am not quite clear what you have just said, to just drop us
a note afterwards to clarify what it is you have just said so
that we can be sure?
Mr Horsfield: I would be happy
to do that.
Q208 Chair: Mr Anthony?
Mr Anthony: We are not in favour
of local authorities using derivative products. We feel that the
training which would be required would be very highbrow and extremely
time-consuming. Could I just make one point about the use of derivative
products? I think as far as derivative products in investments
are concerned it would be more a speculative activity; where you
would perhaps be more useful would be managing debt portfolios
and a change can be made there without recourse to derivative
products, and that is to persuade the Public Works Loan Board
to change their arrangements with regard to the borrowing rates
they charge and the repayment rates they charge, which I think
was one of the reasons why a lot of local authorities were sitting
on very large balances up to the financial crisis whereas they
could have been repaying debt, reducing their cash balances, reducing
their counterparty exposure. Yes, the market has now moved in
the right direction. We are seeing a lot of activity there. Authorities
are breathing a sigh of relief. They are generating good savings
for their revenue account and managing to get this counterparty
headache out of the way, but the distortions that were put in
place back in 2007 I think were just wholly unnecessary.
Chair: Thank you all very much and I
just remind you that you agreed you would let us have your generic
contracts afterwards. Thank you very much indeed.
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