Having been caught out appallingly by the collapse of Iceland's banks, councils and the Local Government Association have been reaching for the fat file marked "excuses" with a vengeance over the last few days. Given the range and variety of excuses and buck passing that's going on, we thought it might be handy to give you a run-down of the main types and the reason they are mistaken...
1) How were we to know? This species of excuse is also known as "No-one saw this coming". These banks, the councils claim, were highly rated by international ratings firms (see point 2, below), everyone loved Icelandic banks and there were no questions about their footing. Unfortunately, this simply isn't true - ratings agencies, the media, parliamentarians, advisory firms and even other councils had been expressing concerns about Icelandic banks' stability for months. Arlingclose, one of the companies which advises councils on their investments, has been warning its local government clients and other councils against investing in Iceland since 2006.
The key question is, if no-one could have seen this coming why did Brighton and Hove council pull out of Iceland 12 months ago for exactly this reason?
2) These banks had AAA ratings from the international agencies. A lot of councillors, council officers and LGA officials have seized on this claim, mixing and mashing official terms as they go. Sadly, it's not true - as this neat summary from the Times makes clear:
On January 30, Moody’s Investors Service warned that it was planning to cut ratings on the main Icelandic banks. It downgraded the biggest, Glitnir, Kaupthing and Landsbanki, from C to C-minus a month later. In April, Standard & Poor’s raised concerns about Glitnir, downgrading it from A-minus to BBB-plus, “the lowest rating at the time of any western European bank”.
Perhaps some of these banks had ok ratings when councils first got involved with them, but they should have been reviewing and reassessing very regularly, not just assuming everything was probably fine. Far from having great ratings, these banks not only had poor ratings but were moving down as a clear trend. They should have picked up on that and acted accordingly.
3) Our advisors told us to. What, those advisors and consultants who have always been defended on the basis that they cost a lot because they're really, really good? If they did tell councils to do this then they weren't very good and they should have their deals terminated immediately. The Finance Directors who pursued these flawed investment strategies should lose their jobs - particularly those that put more money in in recent months despite all the warnings.
4) We had a responsibility to make a profit. In reality, councils' first and foremost responsibility was to keep this money secure. Not only is that common sense - after all, they are councils, not hedge funds - but it is even what the Government's official advice said. In a year of market turbulence and vast financial danger, councils should never have been trying to play the market. Yes, some of these accounts may have had better interest rates than competitors, but frankly an extra 1% isn't worth much when it's 1% of nothing because it's all vanished into an Icelandic crater. This underlines yet again the financial and managerial naivety in so many Town Halls that allowed them to mix up getting a good deal and taking an unreasonable risk.
5) We always act prudently. In short: you obviously don't. The catalogue of errors that got councils into this situation is horrifying. Some councils, such as Haringey, even put taxpayers' money into Icelandic banks in recent weeks - in Haringey's case, even after the first Icelandic bank had collapsed. Not only were they investing money in risky banks in spite of all the warning signs, many councils tied themselves - and taxpayers' money - into fixed and closed two- or three-year deals. It's shocking that over the last few weeks several councils have been desperately trying to take money out of Icelandic accounts but haven't been able to because they had signed away the right to do so. If they hadn't sacrificed all control over the money in this way they would at least have been able to do what South Norfolk District Council did and take the cash out a couple of weeks ago.
The bottom line is this: the money being invested did not come from some city millionaire, looking for the highest possible return in a high risk hedge fund. This was money from the pocket of ordinary taxpayers. The councils had no mandate to play fast and loose with our hard-earned cash.
Responsibility should be allotted and people must be held accountable for this mess. Some councils - notably those who have lost huge amounts of our money in unwise investments - have already started saying conveniently "Well, we mustn't have a blame game about this", but it would be utterly wrong to allow incompetence of this magnitude to pass.
The first step in holding people to account would be for councils to take responsibility for their failings and say sorry. On the Today Programme this morning, having tried to blag his way through using the above excuses, the LGA's Paul Coen was expertly pinned down by Lord Oakeshott but still, even when confronted with the facts, refused to say sorry.
Local councils have angered and alienated millions of people even further in the last few days, so here's a few tips on how to start improving the situation: Step 1, apologies. Step 2, take responsibility. Step 3, accept that the consultants and Directors who got us into this mess should pay the price for the failure.
To do all of those things, one basic change in behaviour is essential: ditch the excuses.