We are living through extraordinary times. Economies throughout the world are in, or on the verge of recession, stock markets are crashing, and governments are having to intervene in the banking sector in a way not seen since the Great Depression.
It is against this background we should study the recent collapse of Icelandic banks, and the local authority investments that have been put at risk as a result.
It is all too easy to suggest local authorities have acted irresponsibly, and stronger regulation are needed. Let us remember, however, no local authority has had to turn off the lights, and only three authorities are in need of direct help as they deal with the financial fall-out.
The local authority investment regulations and CIPFA’s own Treasury management code have proved robust with their emphasis on risk and diversification. If we turn our minds back to the collapse of former bank, BCCI, the picture for some councils was very different. That is not to say we should not look at the lessons to be learned, and make sensible responses.
CIPFA will be working with the CLG, the Audit Commission and the devolved bodies in Scotland and Wales to ensure that this happens. The real danger, however, is that we over-react at a time when local government services and spending will become ever-more important as the country copes with recession.
I would urge the Government not to lose its faith in local government, and to look for the opportunities for local authorities to work on their own, or in partnership, to stimulate the economy. The upcoming review of the Housing Revenue Account provides a real opportunity to give authorities a meaningful role in social housing provision.
Perhaps the biggest lesson is that, rather than tying up local authority resources in red tape, we should let them be put to better use. n
Alison Scott is technical manager at CIPFA
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