In a recent financial report, which basically describes how between £858 to £2575 of your household's money (council tax) is spent this year, Greenwich Council spoke of ‘under borrowing.’
The phrase ‘under borrowing’ conjures up an image of a hardworking, diligent senior manager in the council being summoned, their head bowed, solemn looking, to be berated because they didn’t borrow enough money.
Greenwich Council is consistently sitting on over £250 million of bank deposits earning an average of just 0.35% in interest. Meanwhile the council has debts of £400 million on which it pays an average of 4.65% interest.
For every £million the council borrows as opposed to reducing debt through use of deposits they are wasting approximately £40,000 of council taxpayers money each year.
Of course our council needs some contingency funds and should retain some bank deposits for the proverbial rainy day.
However surely even our worst nightmare scenario of unforeseen circumstances, ‘exceptionals’ in the financial parlance or ‘exceptional incompetence’ (Please see our foot tunnels) in Greenwich Council parlance, even with our current council, would not necessitate £250 million of cash reserves to put things right.
If Greenwich Council used their (our ?) cash deposits to reduce debt by £150 million, still leaving a healthy £100 million for rainy days our interest payments would be reduced by around £6.5 million each year.
Just imagine what £6.5 million a year could do for our borough:
- Hundreds of Royal Borough council homes properly insulated
- Scores of our roads made safer by 20mph zones or other measures
- The totally unacceptable backlog in adaptation of homes for our infirm residents eliminated
All of the above would be without increasing council tax.
Greenwich Council often brings up the hollow argument about ‘borrowing now while it is cheap so we don’t have to when interest rates go up.’
Every year in which we borrow, we pay approx 4.2% net interest vs. zero on amounts paid back by using bank deposits. We should also receive ample warning before interest rates start to rise sharply so can make appropriate decisions then.
Some Labour councillor’s bleat on about ‘early repayment penalties’. Nevertheless the council has some amount of debt reaching its term almost every year which can be paid back without penalty.
Moreover on 3 occasions in the last financial year Greenwich Council borrowed a blind £10 million from the Public Works Loan Board. This was despite having £250 million in the bank. There is no early repayment penalty on not taking a loan out in the first place.
£10 million and £30 million are nice round figures. However borrowing these ‘nice round figures’ shows that Greenwich Council clearly lacks any rigour in assessing/minimising borrowing needs to bring maximum value for council tax payers.
When we need to buy a second hand car or get double glazing we borrow say £5,600 or £7,250. We don’t borrow a nice round £10,000 just for the sake of it and saddle ourselves with excess debt and interest payments. We also wouldn’t borrow money if we had a nice stash in the bank like Greenwich Council.
Why can’t the Royal Borough of Greenwich treat council tax payers hard earned money with the same respect we ourselves have to?
Additionally Greenwich Council had £37.5 million of assets ‘held for sale’ at the end of the last financial year. If indeed we were to sell these assets for their stated value we could reduce our interest payments by £1.58 million a year as well as allowing a new lease of life to some of these assets and perhaps new employment opportunities.
I should at this point add that at the end of the 2011/2 financial year Bexley Council had zero assets held for sale while Lewisham had just £800,000.
Again if we as individuals have things we don’t need any more (old appliances, furniture etc.) they either go to the charity shop, eBay or are sold through an advert in the local paper. Why can’t our council follow the same principle instead of wasting our money?
At a recent council meeting one Labour councillor spoke ruefully of me ‘consistently questioning the council's debt’ and explained how he had arranged ‘training’ on the subject. I make no apology for keeping the same views on council debt levels despite ‘training’ and will continue to question council debt at every opportunity until it returns to more reasonable levels.
It does not take an accountant to work out that Greenwich Council has a considerable amount to learn from very rudimentary management of household budgets. If these simple principles can be followed all of us will gain, particularly those most in need.
This article has been contributed by Matt Clare, a Conservative councillor in the Eltham South ward.