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DAMESATHOME@YAHOO.CO.UK
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Thursday, 13 October 2016

GIVE US BACK OUR MONEY SAYS THE DAME!

Fortunately for readers, the Dame is a graduate of a well-known Swiss finishing school, Institut Château Beau-Cedre, where she got a Double First in Applied Household Economics. 
She rejected a place at Girton as not being sufficiently academic 
With this 'degree' under her voluminous belt, she is well qualified to take a forensic look at how the cat loving bachelor finance chief, Warwick Lightfoot has been handling 
our money.
At the end of 2015 total investments (including reserves and cash surpluses) amounted  to £327 million and yielded 0.45%.  
Adding to the absurdity of the situation, the council also has borrowings of £154 million, on which it pays an average interest rate of 6.75%.  
It can only escape this burden by paying substantial penalties for early repayment. 

It's justifiable keeping a proportion of these reserves on short term call but the rest should be invested for the longer term. Longer-dated gilts yield has been very high over the last decade as interest rates have collapsed after the crash (and now Brexit) and so we residents have been badly hit!
So, why did the Council 'lock in' to punitive interest rates of 6.54% when receiving a miserly 0.38% on reserves?
And so why does it not return the majority of reserves to residents? 
After all, this and previous governments have been strident in telling councils to use reserves for the benefit of taxpayers. 
At the moment they are being used by the international banking industry.


In response to the comment asking what difference it would have made to adopt a different strategy, this PAPER sets it out: 


Over the past five years the total return on a basket of long dated gilts (5 years plus to maturity) was 50%.  Had the council invested £200 million in long dated gilts five years ago, it would now have £300 million to play with.  However this is a strategy that would not work over the next five years because interest yields are now rock bottom.  


An ex-City banker resident advised the Dame,
INTERNATIONAL BANKERS
SHAKE DOWN THE COUNCIL
"a few weeks ago Cllr Paget-Brown tried to justify the sizeable reserves the council has accumulated.  He was very critical of those who felt that some of these reserves could be used to forestall the council’s progressive cuts in services to the vulnerable living in the borough.  

The reserves amounted to £251 million at the end of 2014.  

If the council had pursued a more sensible approach to the management of these reserves, it could have maintained services at their previous level without actually dipping into the reserves at all.  The council’s latest budget shows that it earned only 0.38% on its reserves last year, continuing the low returns received on these reserves in previous years.  This poor outcome arises because most of the reserves are invested in low-yielding short-dated gilts (government securities).  

A much higher rate of return could have been achieved by investing most of the reserves in longer-dated gilts offering the same security to the council.  
There was no need to hold such a large proportion of the reserves as liquid assets, and these low returns mean that the real value of the reserves has been progressively eroded by inflation.

      

27 comments:

  1. Dear Dame, could your new financial advisor let us know how much £ the Council is LOSING by not investing the amount they do not need for the current five-year capital plan? I think residents should be told.

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    Replies
    1. Sure the Daily Mail would be interested in this!!!!

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  2. RBKC has a long history of overtaxing residents in order to create a big piggy bank for the vanity projects eg Holland Park School, Exhibition Road,Holland Park Opera (capital expenditure for the tent), Leighton Museum, interest free loans to developers for projects such as the Design Museum.

    The list goes on and on.

    In moments of madness the vanity project account has even beed used as a war chest to bribe electors at election time by promising "no increase in council tax if you vote for the Tories, we will hold the level and use the reserves for the increase"

    It is time for this to stop. The Council has no business overtaxing hard pressed residents by £300 million in order to create a piggy bank for vanity projects and bribing the electorate

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    Replies
    1. Retired Chief Executive15 October 2016 at 08:41

      Bureaucracies and ruling cliques always self perpetuate and multiply if left unchecked. In the absence of a working democracy it requires great determination and perseverance to stop the rot and eradicate the abuse.

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  3. Unbelievable crass management!

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  4. Labour raises this stupid policy every year in their alternative budget and every year Lightfoot jeers at them and calls them profligate. The £300+ million is needed to pay for the Elizabeth Line station in North Kensington. When offered this station under the general plan for Crossrail in the early 90s, former Council Leader Merrick Cockell turned it down. Now we have to pay for it ourselves, hence the need for massive reserves.

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    1. Could this crass decision by Pooter be 'reversed' due new circumstances?

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    2. front page of last weeks local paper says £900 million for station,
      Presumably they're intending to borrow the money (while interest rates are so seductively low)....

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  5. What on earth is local Government doing spending Council tax to create transport infrastructure This is bonkers.

    Suppose K&C tax payers became liable for the underground, sewers, roads, traffic lights et al.

    What is the offset in the Income Tax that we pay?

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  6. I think they believe that if the alleged new homes built as a result of the new station are sold to foreign investors and money launderers, they will recoup the funds from the private developers.

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    1. Well, the share value of Berkeley Homes who are the developer of the site fell off a cliff after the Referendum. They haven't recovered since. The luxury homes market is in terminal decay.

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    2. They are not the only ones. CapCo too, shares have tanked and looks like Exhibition centre was needlessly demolished.

      You're right luxury market is now DEAD! Those public service chaps just don't realise it. IF they keep behaving the way they do, theyll be selling the big issue.

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  7. This spending must be ended.

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  8. There is a very bad smell here. Horton Street taxing and spending without any checks and balances. It is the result of a 50yr Tory monopoly in the Royal Borough. Power corrupts and absolute power corrupts absolutely.

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    1. oh, this has always been the case. The defunct Audit Commission, supposed to 'audit' the books was in Pooter's pocket.. all local firms, with very limited remit and they most probably sport these old weird insignia. Is the 'new' audit lot be any better? NO, is the answer....

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  9. ....and still they vote in these tragic Tory turnips? (Not that the alternatives would likely be any less incompetent).

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  10. The political system in Kensington and Chelsea is long overdue for a refresh. The Tories are corrupted by power, Labour long ago gave up hope and have morphed into a remote and irrelevant mushroom, and the Liberals never managed to organise their arrival in Hornton Street for success.

    A rag bag of mischief, baggage and irrelevance

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    Replies
    1. There is ONE HUGE OPPORTUNITY in Kensington and Chelsea for a Nicola Sturgeon

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    2. Though one of the few councillors that does what she says is Lib Dem Linda Wade. If there were more like her we would be a better borough, she even has a proper job unlike the toads of Horton Hall.

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  11. Can Linda Wade get the media attention like Sturgeon does? The only way to shake up our dead monopoly Borough is for a Councillor to come forward/emerge who can make the media catch fire.

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  12. Kensington and Chelsea is one huge opportunity for a politician to take it by the scruff of the neck and turn it around.

    Time for a shake up!

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  13. This silly post by the Dame has been done to death by her equally silly bloggers. The Tories run a tight ship with responsible financing.

    Long live Piggy

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    Replies
    1. Agree completly. These painful Labour inspired diatribes are leaked to the Dame by EDC and the silly old woman picks them up when she cant tink of something else to moan about

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    2. Yep nothing to worry about. With most newspaper files on RBKC Councillors keep bulging, every back hander and swindle has been recorded. Look forward to it when this is ALL published.

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    3. Dear Dame, you know I had nothing whatever to do with this post. Delighted that someone else has picked up on it and provoked debate.

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  14. Oh dear, Inspector Clouseau commenting on his own posts here! RBKC is awash with financial scandals. The ongoing BT managed services contract and the Action for Children chaotic outsourcing of formerly excellent children's centres (courtesy E. Campbell) being just the most recent.

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