Diary of a Sutton Councillor

Tuesday 28th October 7.30pm

Scrutiny Overview Committee

The main topic of interest at this meeting was the review of the Council’s Treasury arrangements in the light of the £5.5 million currently frozen in Heritable Bank plc – a UK subsidiary of the Icelandic bank Landsbanki.


A review of the council’s treasury arrangements had been carried out by Paul Rigg, an independent consultant. This review had already been scrutinised by the Tory-chaired Audit Committee and we had received a copy of the minutes of that meeting. Sue Higgins, Strategic Director of Resources; Cllr. John Drage, Executive Councillor for Resources, and Audit Committee chair Cllr.Terry Faulds attended the meeting to take questions.


The summary conclusions of the independent review were as follows:

i)                    The Council’s operating framework is comparable with best practice in the sector.

ii)                  The deposits made with Heritable Bank plc in August and September were made entirely in accordance with that framework as approved by Council.

iii)                The recent banking crisis is unprecedented in its scale and speed and all sectors and levels of expertise have been caught out. However there are always lessons to learn for those who suffer from such events.

iv)                Heritable Bank plc is a UK registered and regulated bank, and there is some hope that its short term credit rating on which the Council relied will prove about right and that UK Government intervention will also prove to have been a beneficial factor.

v)                  The Council’s Treasury Management Advisors have complied with their contract and the advice received on the Heritable investments was drawn from the credit rating agencies data in the usual way. There are clearly questions to be followed up nationally about the role of these agencies, and whether a system designed for normal times could ever cope with what transpired over the past few weeks.

vi)                The Council’s immediate response has been perfectly reasonable, but the basis for a further review with your advisors is suggested.


These conclusions were endorsed by the Audit Committee and recorded in the minutes of that meeting.


To me this begged the question of why it had been requested that the Scrutiny Overview Committee also look at the review. The answer to this was soon made clear when Tory Councillor John Kennedy pronounced that whilst the review and Audit Committee had exonerated the treasury management staff, there was still the issue of political accountability to be considered. Obviously as the Tory big wigs all sit on the Scrutiny Overview Committee they couldn’t miss their opportunity to milk the frozen asset situation and have a pop at another executive member.


Cllr Kennedy then stated that he had ten questions to ask, but graciously accepted that he might not have time to ask them all. I don’t suppose it ever occurs to him that other committee members might have some questions to ask of equal importance.  Cllr Kennedy was obviously determined to dominate the meeting managing a straight run of eight questions and coming back with a good few more later.


Cllr. Kennedy’s first thrust was around the timing of the deposit and the ‘A’ credit rating from Sector that the treasury management team relied on when the September 30th deposit was made. It was revealed that any change in credit rating was updated immediately so there was confidence that the rating relied upon was the most recent and up to date.


Cllr. Kennedy’s next line of attack was on Cllr. Drage regarding the forseeability of the situation and the Executive Member’s involvement in overseeing the treasury deposits. Cllr Drage explained that a strategic policy had been set, which was risk averse and in accordance with best practice, which the treasury management department had followed correctly. It was not the role of an executive member to micro manage their areas of responsibility. Cllr Kennedy appeared to believe that Cllr. Drage should have stepped in and overruled the policy. Cllr Drage was frank that with hindsight he might have questioned the deposits if he had been more closely involved. However this led me to ask what if a member had interfered but made the wrong decision – surely this would have had more severe political consequences? I am sure that the Conservatives would have been all over him like a plague of locusts had it been that Cllr Drage made a call that was contrary to strategic policy and had then put the council in a difficult position. This is why micro management of council affairs by members is not a good thing. Policies and strategies have to be agreed and scrutinised and then followed. We can’t have councillors overturning agreed policies on a personal whim, not least for the liability that would place on the member involved. It concerned me that Cllr. Kennedy appeared to believe that this was the way the Council should be run.


The independent consultant had expressed concerns about the long-term viability of the emergency measures undertaken with regard to treasury deposits. Sue Higgins explained that as a risk averse measure deposits were only being made in UK & Irish banks. In response to my question Ms Higgins agreed that this limited the spread of the investment portfolio considerably and the situation was being closely monitored.


My colleague Cllr Bailey asked about the income generated by treasury deposits and its likely impact on the council. Ms Higgins replied that total deposits earned approximately £2.6m per annum and contributed significantly to the council’s revenue resources.


This item ended with Cllr. Faulds commending the council for acting quickly in obtaining a review to reassure residents and providing a way forward on treasury management.



November 26, 2008 - Posted by | Committee Meeting

1 Comment »

  1. Jayne

    Do you not think it right then for the question of political accountability to be explored?
    You state
    Cllr Drage was frank that with hindsight he might have questioned the deposits if he had been more closely involved. However this led me to ask what if a member had interfered but made the wrong decision – surely this would have had more severe political consequences?

    The problem is that he didnt and the consequences are £5.5 million frozen.

    Micro management is one thing but taking an interest is another and that is what the lead councillor should in my view have done.

    Comment by adrianne | December 2, 2008 | Reply

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