We’d all prefer to spend Christmas Eve at home with our families, but should all of the employees of Stoke-On-Trent City Council be treated to the day off as a thank you for all of their “hard work” at taxpayers’ expense?
This ‘thank you’ gift on behalf of the taxpayers of Stoke is estimated to cost around £600,000 (almost as much as the recent refurbishments!) and has been granted by the council’s chief executive, Steve Robinson.
Those who are required to work on Christmas Eve are allowed to cash their day in later in 2008.
Predictably, the website of The Sentinel newspaper has been flooded with comments, mostly by disgusted taxpayers’ who see their council’s service as utterly substandard and feel that this reward is undeserved. Most complainants argue that a this day off shouldn’t be paid, and one peacemaker interjects that his friends who work for Stoke Council just ‘mess about’ during the week before Christmas so they may as well have the time off… Unbelievable.
If evidence is needed of Stoke’s persistent incompetence then a quick look at this very blog and their catalogue of recent disasters should be enough to prove that this is a council with no reason to treat itself, let alone at local residents’ expense.
Believe it or not one of the reasons for this high praise is that sick-days have dropped from an average of 12.86 days per year to 11.57 days. Still a staggering number of days, and undoubtedly insufferable for most private sector employers.
Stoke also won the Royal Horticultural Society’s Wigan Cup for 2007, and as they stroll lazily into 2008 they can let this minor victory eclipse the fact they have been rated the worse council in the country. Hopefully in 2008 their unfortunate electorate will be quick to remind them at the ballot box of their utter failure to reign in spending or significantly improve badly needed frontline services.
There’s an excellent blog by our friends at the West Midlands NO! campaign, detailing exactly how poorly our regional bureaucrats are performing by the standards of the Department for Business, Enterprise and Regulatory Reform.
As already blogged, yesterday’s Treasury statement on the extended Northern Rock guarantee suggested taxpayers are now on the hook for all of the Crock’s borrowings, except for a few billion of subordinated debt: ie we are guaranteeing around £100bn.
Yet most of today’s headlines say the guarantee "only" covers around £56bn. So what’s going on?
The HMT press release yesterday morning said the guarantee covers retail deposits, wholesale deposits, unsecured borrowing, secured borrowing where the security actually turns out to be insufficient, collateralised and uncollaterised derivatives, onshore and offshore. Which is pretty well everything- hence the £100bn.
But when, a little later in the morning, the Bank of England Governor and Deputy Governor appeared before the Treasury Select Committee, they told a slightly different story:
"Essentially, this does widen the scope of the guarantee to pretty much the whole balance sheet excluding the capital and the Granite securitisation. All that guarantee is secured against the asset value of the company."
Mervyn King, governor of the Bank of England, said about 40 per cent of Northern Rock’s £114bn ($229bn) balance sheet related to the Granite programme, with a third covered by the extended guarantee.
A further 25 per cent was Bank of England and Treasury loans, "leaving a very small residual that is essentially capital".
So in terms of money, that means we’ve now lent c £29bn directly to NR (equals 25% of £114bn), and guaranteed a further c £38bn (equals 33% of £114bn). Which totals c £67bn.
So the origin of that quoted £56bn is mysterious.
And taxpayers should also remember that while the c £45bn of NR’s now notorious offshore Granite securitised borrowing is supposedly excluded from the guarantee, without it, Granite would soon unravel. That’s because although the Granite borrowings are secured against specific pools of NR mortgages, the Rock has continuing obligations to maintain those pools- the programme is not "fire and forget".
What’s more, Granite’s borrowings are essentially short-term. It is constantly needing to "roll-over" its maturing debt- ie redeeming existing borrowings and replacing them with new. Once Granite’s investors take fright at NR’s capacity to perform, roll-overs get very difficult, and the whole programme could collapse. And what gives it urgency is that the Granite borrowings are maturing fast, with £1.5bn due in January alone.
We stick to our view: the reality is that taxpayers are on the hook for the whole lot. Which according to the BoE is well over £100bn.
There are two points surrounding yesterday’s events at Northern Rock that really need to be cleared up.
First, the BBC’s Business Editor, Robert Peston, is very enthusiastic about Bradford & Bingley’s offer to help out at Northern Rock:
"In the worst case of the Rock being nationalised, it could take assets off the Treasury’s hands and lessen the very substantial burden and risks for all of us as taxpayers,"
So, Bradford & Bingley are going to take a load of the rather unreliable Northern Rock debt off the taxpayers’ hands? How good of them! Should Bradford & Bingley shareholders be up in arms about their company’s directors using company funds to bail out the Treasury?
Probably not. The truth is that Bradford & Bingley’s directors wouldn’t be looking at buying Northern Rock Assets if that move didn’t have the potential to be a good deal for the company. Not because they’re bad people but because they have a legal and moral duty to look out for the interests of their shareholders. So, unless we think the Treasury has somehow outwitted them – an idea so far fetched it would have to be retrieved from the moon – the proper question to ask is: how are Bradford & Bingley going to get value from a deal for Northern Rock assets?
The answer is obvious. They’ll take some of the best assets – the most reliable mortgages – at a low price. We’ll have a smaller liability but the range of assets that Northern Rock will be left with to pay off its massive debts to the taxpayer will be more than commensurately smaller.
This is particularly worrying thanks to the other big new Northern Rock story. We’ve now guaranteed to wholesale lenders that they won’t lose money on Northern Rock. There are two important things to notice here:
1) Taxpayers are now covering almost all the downside risk. This is so close to nationalisation that the final taking of the bank into public ownership is increasingly of totemic, rather than material, importance.
Research into privatisation (PDF) for the Competitive Enterprise Institute by Eli Lehrer and Iain Murray seeks to redefine the concept of privatisation and nationalisation in terms of who bears the downside risk as the question "who will lose money if it goes under" is often more important to incentives and real control than nominal ownership. If we accept Lehrer and Murray’s analysis then Northern Rock is already pretty much nationalised.
2) We’ve effectively been booted way down the queue of creditors looking to get paid in the event of Northern Rock going under. When its assets are sold the wholesale lenders will now need to be paid, in order to satisfy the new guarantee, before we are. With Northern Rock’s mortgage book in doubt and plenty of existing claims on its assets – even before any Bradford & Bingley stripping – we should have very little confidence it will be possible to get taxpayers all of their money back.
All in all, the last forty-eight hours have brought a lot of worrying news for taxpayers.