Despite having made headlines in The Sentinel for spending £23,000 on publicity, Stoke-On-Trent City Council have now recruited a new head of public relations and communications on a £75,000 salary.
When asked the question, ‘Do you think the £23,000 monthly cost of the city council’s PR team is good use of taxpayer money? A massive 84.7% of online readers voted ‘NO’. This new appointment has just added fuel to the fire.
How much longer can Stoke Council continue to ignore the wishes of their electorate in wasting money in this way?
At the Northern Crock, taxpayers remain on the hook for £25bn of loans and a further £15bn plus of guarantees for depositors (see previous blogs here, here, and here, and this Treasury statement which spells out that the guarantee applies not only to retail deposits, but unsecured wholesale deposits as well).
The short answer is precious little. What we have been told is that neither is offering to repay anything like the whole £25bn we’re owed on Day One. Branson has offered £11bn, and Arnold £10-£15bn, but since neither seems to have entirely tied up the commercial banks to provide the money, there isn’t a whole lot to choose between them. They are both planning to keep £10-£15bn of our cash to be repaid at some stage over the next few years, effectively on a best endeavours basis. And in an environment where house prices may well be sogging drastically.
Moreover, taxpayers need to remember a very important point- our loan to the Crock is in two parts. Around £11bn seems to be secured against mortgage assets. But the rest- the bulk- is unsecured. And this being the real world, we can be pretty sure that both Branson and Arnold are proposing to repay the secured debt first. By "unencumbering" £11bn of mortgage assets in that way they will be be able to reuse them to secure more borrowing from commerical banks.
Unfortunately, that leaves taxpayers standing in line with all the other unsecured creditors for repayment of the other £15bn. And according to that leaked NR sales memorandum (see this blog), £74bn of the Crock’s £90bn mortgage assets are already "encumbered" (ie pledged as security to existing lenders). So the unsecured lenders are pretty thinly covered.
In reality, we will only get our unsecured loans back anytime soon if NR’s retail deposits base can be rebuilt, with fresh deposits being used to repay us. But is that in any way feasible? And more specifically, is it feasible without a continuation of the government deposit guarantee?
Both bids seem to envisage keeping that guarantee in place for "a period". Darling’s plan had been to step away under cover of an increase in the general bank deposit guarantee up to £100,000. But that’s now being opposed by the commerical banks on cost grounds (see here), so it looks very much like taxpayers will be staying on the hook.
True, Branson’s bid does look the likelier of the two to survive without the guarantee. Whatever the City may think, many members of the public do seem to trust him, and since he launched his bid, NR’s loss of deposits has reportedly dropped from about £200m per day to roughly zero. Arnold has no such credibility, and his intention to stick with the busted Crock brand looks like pie in the sky.
And even with the Branson bid, does anyone seriously imagine Virgin could capture a quarter of all new UK retail deposits, as apparently envisaged in their plan? Just take a look at the deposit market breakdown pre-crisis, with NR on just a 3% share: Source: British Bankers Association
As we’ve said many times before, it’s very difficult to imagine taxpayers escaping intact from this fiasco. And at the end of the day, it may very well be that nationalisation and an orderly run-off is the best we can expect.
But what we should not accept is a deal where we continue to underwrite the bank while existing shareholders retain a stake. If the bank can’t survive without state support, it’s effectively bust, and shareholders must lose everything. Taxpayers should never be forced to bail out shareholders.
These two bidders should be asked to reshape their bids so that taxpayers are taken out whole soonest- no continuing loans, and no continuing guarantees.
If they can’t do so, then Kaletsky nationalisation is the least worst option: the government gives notice that all loans must be repaid in full by end-February (including rolled up interest); failure to do so means Northern Rock will be nationalised for £1, depositors paid out, the assets sold off over a period of time, and the entire operation closed down.
Not the only hangover from Mr Hoon’s time at MOD
Last week your correspondent attended the Public Accounts Committee hearing on MOD’s bungled 2003-06 sale of QinetiQ (transcript here and see previous blogs, including here). BOM readers will be familiar with the huge profits made by the purchaser- Carlyle- and the company’s executives led by Sir John Chisholm.
As you might expect, PAC members launched a heavy attack on the witnesses, who included Sir John himself and the present MOD Permanent Secretary, Bill Jeffrey. Overall, both came out of it with their wickets intact, inasmuch as they stood their ground and the Committee learned little beyond the NAO report (see here).
But it was still a sobering reminder why civil service mandarins cannot be trusted to avoid a skinning when it comes to dealing with the sharp end of the private sector. PAC Chairman Leigh described MOD officials as "naïve babies in a sea of sharks".
One exchange is especially worth highlighting. Leigh was questioning Chisholm, who as you will recall, made a £25.8m profit on his £100,000 investment (a 19,900% return):
Q18 Chairman: What the public think is that it is frankly appalling. It goes totally against any concept of ethical capitalism, Sir John, that you can put £100,000 into a business and emerge with £25 million of taxpayer’s money. Nobody from outside can understand it. Do you have any sense of shame here before us?
Sir John Chisholm: I have a considerable sense of having led a team to create £1 billion worth of value for the taxpayer. I think that is a great achievement by the team…
I believe in any deal like this there was a contractual agreement put by the investor to the management team that had considerable risk for the management team at the time and they signed up to it…
The NAO report itself says that if the company had not achieved a 20% return at least then the management team would have lost their whole investment.
It wasn’t a popular line with the Committee, but we have some sympathy with Chisholm. He did risk his own money, and he was only receiving what had been agreed by MOD. Why should he be ashamed?
The shame rightfully belongs to those who committed taxpayers to the transaction- ie MOD ministers and officials. They were the ones who let in Carlyle at too low a price, and they were the ones who then agreed the juicy incentive scheme for execs.
And lest we forget, the Defence Secretary at the time was Geoff Hoon, now Labour Chief Whip. The MOD Permanent Secretary was Sir Kevin Tebbit, now a director of Smiths PLC, the technology company, and also Chairman of Finmeccanica UK. Both companies have extensive defence businesses, and… well, whaddaya know… extensive contracts with MOD.
But behind both of them was the Treasury, pressuring the MOD to secure a sale in order to hit its top-down asset sales target. Now remind me… who was Chancellor at the time? When we talk of shame, let’s locate it in the right place.
PS This is not the first time BOM has disageed with Chairman Leigh on blame attribution. Regular readers will recall the appalling case of the Norfolk and Norwich hospital PFI contract, where the contractors cleaned up at taxpayers expense. Sir Edward described them as the unacceptable face of capitalism, but the real blame lay squarely with the Simple Shopping Department of Health.
PPS The QinetiQ debacle contains some ominous pointers for the Northern Crock escape plan- public officials under political pressure to reach a quick deal, a preferred bidder arrangement that went disastrously wrong, and some pretty sharp operators on the other side of the table. We’ll be blogging it separately.
Stoke and Staffordshire newspaper, The Sentinel, gave the West Midlands TaxPayers’ Alliance some great coverage on Tuesday as their own findings about Stoke-On-Trent Council spin coincided with the TPA’s council spending report.
We found that Stoke has increased publicity spending by 279% over the last ten years, and The Sentinel said that press office expenditure is now hitting over £23,000-per-month.
This is how the lowest scoring council in the country is spending their local taxpayers’ money, diverting funds into positive promotion rather than into failing services.
Ten councillors were asked their opinion on these figures and only three could see any benefits to this huge increase, and the three members of the public questioned all felt that this money could’ve gone towards improving services.
Ironically, the public image of Stoke-On-Trent City Council just gets steadily worse and it’s a simple fact that this will not be rectified by patronising local residents with propaganda aimed at raising their profile without making a concerted effort to raise their game.
It makes it worse that taxpayers in Stoke are shelling out to have the wool pulled over their eyes. Once again, Stoke-On-Trent Council are slapping a Ferrari badge on a Lada and expecting the electorate to buy it.
Many councillors have spoken about the lamentable state of Stoke’s finances, their services also seem to reflect this, so that this council can tend so conscientiously to the superficialities of promotion, rather than reaching for their buckets to bail this council out of trouble, shows an intrinsic lack of consideration and a real propensity toward bad management.
When discussing the education system’s poor performance it is common to focus on the costs to the economy, the children concerned and their chance of making their way in the world or even the waste of taxpayers’ money thrown at an underperforming system. However, the education system’s failure also wastes huge amounts of the pupil’s time. Take this story, from the Telegraph:
"Children are making virtually no progress in mathematics in the first three years of secondary education, a major study showed yesterday.
Even the brightest pupils struggle between the ages of 11 and 14 as they "plateau" after leaving primary school.
Some children may even be going backwards – raising fresh concerns over the way they are taught."
Now, I have it on good authority than an 11 to 14 year old will have 4 to 5 hours of Maths in each school week. A school year has around 34 weeks in it. That means that wasting three years of education means that each pupil is wasting around 459 hours; perhaps parents worrying about their children wasting time in front of the television have chosen the wrong target for their ire?
Our education system needs real reform so that we can end this waste.