Saturday 22 January 2022

The Limits to Financial Responsibility

Every capitalist is in favour of financial freedoms: it's fundamental.  Every conservative is realistic about human failings.  Both statements need qualifying; but they are not irreconcilable.  They do, however, add up to limits at the 'freedom' end of the continuum.  Bracing and salutary as it may be to give financial responsibilities to as many people "as possible", there is little point in conferring freedoms where they will inevitably be abused on a scale to be of general disbenefit.  

It's a scalar matter, and there is no merit in striking purist, polar attitudes.  We don't, for example, allow people to sink their pensions into the shares of the company that employs them; nor drive cars without insurance.  There are all manner of constraints on banks etc.  

Another very sensible restriction is that placed on local authorities before 2012, preventing them from getting into commercial ventures (beyond some very tightly limited, essentially de minimis cases).  Heaven knows, I was a local councillor for a number of years and saw at first hand the limitations of a large proportion of my fellow elected representatives - and indeed those of full-time council officers, notwithstanding the genuine specialist skills many of them possessed.

Then along comes G. Osborne - complete with his student-politics talent and deeply unrealistic political attitudes - with his Localism Act, which turned LAs free to enter more or less any contract they fancied.  And away they went, not least in my own home town of Croydon, bankrupt thanks to crazy commercial schemes (mostly in property, in that case).  Croydon, however, is not the subject of today's story.

It's Warrington, another council I've written about before which, in 2019, bet the farm on shares in a distinctly ropey-looking small energy company, "Together Energy".  (How the Together management pulled that one off, one can only speculate: but the words "due diligence" don't quickly come to mind.)  Remember that by that time, Nottingham and Bristol city councils were very publicly staring disaster in the face with their own hopeless energy ventures, "Robin Hood Energy" and the less imaginative "Bristol Energy", so it was already pretty well understood that there was many a deep pitfall down that path.

But no, Warrington Council parted with £18 million of its residents' money for the shares, plus more in loans and guarantees, and then more loans and more guarantees ... and still Together went bust, just this week, when Warrington wasn't willing to allow matters to go even further - as was obviously always going to be the case eventually.  To make matters even more poignant, Together Energy even bought (with hard cash) the residential customer portfolio of Bristol Energy along the way.

Now tell me, Osborne, what possible contribution to the Public Good is represented by allowing such things to happen, as they inevitably have.  Does it teach other councillors a lesson?  Evidently not: Bristol and Nottingham were foundering in the full glare of publicity when Warrington got started.  Fact is, councillors and council officers are proven wholly unfit to be allowed to embark on commercial ventures: and that's a fairly restrained way of putting it.

The challenge of striking intelligent balance in policy-making is endless.  Right now, this one is badly out of kilter.



BlokeInBrum said...

If such investments are to be permitted (and I don't think they should), then there has to be a mechanism whereby the people responsible for those decisions are held accountable, otherwise there is no incentive for them to be prudent.
As it stands, too many people in local Government are simply gambling with other peoples money - they may as well be playing at a Casino.

djm said...

The structural problem for local authority enterprises: it’s all too easy for them to keep going back to their parent council for more money. Where there is political enthusiasm for, and commitment to, an idealistic concept of “our” energy company, it is tempting to support pouring good money after bad, in a manner that few genuinely commercial firms can expect from their shareholders.

Compounding this serious “moral hazard” for councils, and corresponding risk for council tax payers, is the defensiveness and secrecy with which senior councillors react when their favoured projects are going wrong – a basic human failing no doubt, but one which scrutiny provisions are designed to mitigate, and promises of “transparency” should reinforce. Unfortunately, defensiveness as regards some types of failure finds a ready tool for hiding uncomfortable truths: “commercial confidentiality”.....

DJK said...

Presumably what Osborne had in mind (again, for Bristol) was the likes of the Port of Bristol Authority, where ratepayers' money was invested in long term development of the docks in Bristol and Avonmouth, during the 19th and 20th centuries. This was all forcibly privatised by Mrs Thatcher's government in the 80s (I think). Or again, Hull Telecom, founded by Hull Corporation in 1902 and not privatised until 1999.

Jan said...

Agree with all the above Nick. I doubt whether there is a single councillor nationwide with the relevant commercial experience to set up such enterprises. To be fair, many in the private sector didn't either and couldn't survive recent hikes in wholesale prices of gas/electricity.

The primary job of councils surely is to provide services to their residents at the most cost effective prices.

While we're talking about councils, another thing which really rankles is the proportion of councils' incomes which are spent on the pensions of their retirees and how it has risen over the years to the detriment of service provision for their residents.

Elby the Beserk said...

Mendip District Council have a

Climate Resilience Officer.

That's all you need to know re fiscal incontinence, tho' the fact that the eternally cash strapped NHS are endlessly advertising Diversity and Feeling Good Outpost Co-ordinators at £50 to £80k a throw would suggest otherwise.

Stupidly, I thought the Tories might put an end to this bollocks, rather than buying into it big time.

Timbo614 said...

It's not just what councils spend our money on, it is what they allow planning wise too.
Woking has just grown 3 new towers at 23, 32 and 34 storeys high.

Now they have granted planning for another 5 towers not even a 100 yards away the tallest being 36 storeys.

It's going to look more like Manhattan than a Surrey town from our bedroom windows.


dearieme said...

It's really easy. Government is for doing collectively things we cannot do individually. We can individually invest in energy companies so governments shouldn't. The End.

Matt said...

It's not just local government that is wholly unfit to spend tax payers money - central government has exactly the same failings. For example, the £4.3 billon lost to fraud whilst the pandemic was raging.

The same solution that applies to local government (stop them spending money on anything bar the absolute essentials) also needs to apply to central government also.

Charlie said...

Incentives and accountability. These people have no skin in the game. Will a single person lose their jobs over these fiascos? Will a single council change hands?

E-K said...

God knows.

Politicians are not meant to be speculators.

They are just meant to spend taxpayer's money wisely and account for it end of year.

E-K said...

Boris is finished btw.

Elby the Beserk said...

This says all you really need to know about the priorities of the public sector post-Covid...

"Boris Johnson is pushing for an end to the working-from-home culture, putting him on a collision course with senior officials, who are planning to keep a large number of their staff working from home, reports the Mail."

They've got used to being paid for who know what (or even nothing), and won't go back to work.

Olg Git Carlisle said...

Not just commercial - the clowns of socialists and libs misrunning the hated Cumbria Cumbria Council have incurred their own costs and those of six other councils in attempting to have a judicial review of the sensible reorganisation. This was thrown out by judge who allocated costs to Gove and the six other councils. Still waiting for FOI request on Cumbria for total costs.

E-K said...


It is, in effect, a strike/go slow by the civil service.

The public sector has been in a state of General Strike of some form throughout the Covid Crisis. (Secondary picketing in the private sector forced by the teaching unions.)

The People voted the 'wrong' way several times and now the Leftists in charge have been making the country ungovernable.

They do not want Covid to end.

E-K said...

A smart chap, one Adrian Chiles, writes that he loved WFH and this crisis.

That he could go to an empty pub (which is the way he likes it) only to find the pub landlord had decided to give it up and shut the pub.

Like - D'uh ! Did AC have to be told that this would be the outcome ?

Boris has had it. His own party have the black on him. It's all but over now. The BBC has been unrelenting.

Elby the Beserk said...

A reflection on the very matter of "Financial Reponsibility"


E-K said...

Billions lost to fraudsters. And a Birthday party for Boris in the No 10 flat with 30 guests during lockdown.

He can't stay on now, surely ? How much has Cummings got ?

E-K said...

The awful thing about this is that we're likely to lose Boris just as he's got a sense of proportion about the disease... and get someone like the wicked Zero Covid nut, Ardern, in his place.

Maybe his epiphany is *why* there are such unrelenting attacks from the BBC.

Anonymous said...

I wonder if Cummings will ever reveal just why he decided to bring down Boris.

Too toxic to hire now.
Too talented to not.

hovis said...

So this looks to have been a perfect storm -
+ Relaxation of rules by Osbourne-Blair/Cameron project
+ Lack of ability, nous and diligence by councillors
+ Greater risk appetite / lack of understanding of real risks along side push for greater returns as a general culture post 2008 (normalisation of expecting outsized / bubble returns)
+ Moral hazard

Now remind me of the requirements misfeasance in public office again?

E-K7.35 - yes

andrew said...

Johnson wrote laws that said no gatherings indoor with more than 2 people.
Then had a birthday party in his flat.

Capitalism will not work where people choose which rules they want to follow.

Nick Drew said...

Good summary, hovis

many would add ... + cutbacks in LA grant funding, & ultra-low returns on 'conventional' low-risk investments

I remain interested by what Thurrock has done, i.e. huge investment in solar farms, with (it has to be said) fairly diversified asset-base, & all in receipt of high-certainty subsidy revenues

Elby the Beserk said...

Nick Drew said...
Good summary, hovis

many would add ... + cutbacks in LA grant funding, & ultra-low returns on 'conventional' low-risk investments

I remain interested by what Thurrock has done, i.e. huge investment in solar farms, with (it has to be said) fairly diversified asset-base, & all in receipt of high-certainty subsidy revenues

8:20 am

I would categorise (well, I would, you know me, I'm am ornery critter as they used to say in the Westerns) what Thurrock is doing as rent-seeking as a major scale, leeching off the taxpayer. Investment? Theft? Troughing at the public purse (all the rage, sure).

Not much to differentiate in such cases, methinks

Sackerson said...

I'm reminded of a Dave Barry piece in which he ironically describes the wonders of investment and his reader is made to ask, 'Where can I buy these shares?' to which Barry helpfully replies 'I will sell you mine.'

Unknown said...

Remember it was the municipal corporations that built the sewerage and water systems; the hospitals; the gas and electricity networks while Whitehall concentrated on running the colonies.