News: Rotherham Council finances “dire”

News: Rotherham Council finances “dire”

The lead commissioner at Rotherham Council has warned that the authority’s finances remain “dire” and the estimate of the savings it needs to make in the next three years has increased from £40m to £48.1m, with 500 jobs set to go.

A number of budget saving ideas and ways to increase income are currently going through Council channels as the Authority prepares its budget for next year and beyond.

The latest comprehensive list of proposals sets out that £41m was the target to be saved over the next three years from 2016/17 based on a 9% reduction in Settlement funding from central Government per year.

A council report now states that there “are a number of additional unavoidable or essential service pressures which have been identified in the coming years” that could add up to a further £6.5m to the budget challenge in 2016/17 and could be repeated up to this level in the future years.

Read on… http://www.rothbiz.co.uk/2016/01/news-5795-rotherham-council-finances.html

24 thoughts on “News: Rotherham Council finances “dire”

  1. I hope these labour supporters realise HALF A BILLION pounds is a huge amount of money wether you are allowed to borrow it within any framework or not, the fact remains that the £29MILLION pounds paid to service this debt which goes back to when we had the west riding is sheer lunacy considering we will be facing cuts for many years yet, if the interest rate starts rising its pity us. Surely it would have made some sense when things were better to try and reduce the capital amount no matter by whatever small amount. This is proof again if needed that this council is still unfit for purpose and that we will be saddled with this debt for a very long time yet

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  2. The financial incompetency 0f RMBC councillors knows no bounds.

    Rotherham Council is trapped repaying £173m of long term commercial loans taken out before the global financial crisis at interest rates fixed above current rates. The Council has 16 LOBO loans, including four with Barclays, three with Germany’s Dresdner Bank AG (now part of Commerzbank) and three with Dexia, the state-owned Belgian-French banking institution.
    Rotherham Council borrowed £15m from Germany’s real estate bank, Eurohypo (now also part of Commerzbank) at an interest rate of 6.88% for a period of 60 years from February 2006. The “special features” of the loan mean that the bank could alter the interest rate every six months if it gave three days notice. If the Council chooses not to accept the new rate it could prepay the loan without penalty. If the lender chooses not to alter the interest rate, the council cannot prepay the loan.
    Rotherham Council last used the PWLB to borrow £15m in 2012. The three loans were for between 19 and 22 years at interest rates of between 3.26% and 3.44%.
    Also in 2012, another LOBO loan was arranged, this time with Siemens Financial Services for £10m over a period of ten years at an interest rate of 3.22%. It included a termination sum amounting to the full loan amount plus all accrued but unpaid interest, breakage costs and any other due but unpaid amounts.
    In late 2013/14 arrangements were made through a forward deal for the Council to borrow £20m in 2014/15 from the pension fund of BAE Systems. The rate of interest on this debt is 4.05% and the loan period is 44 years.
    http://www.rothbiz.co.uk/2015/07/news-5340-rotherham-councils-173m-lobo.html

    These are the economics of a banana republic not those of supposedly fiscally responsible councillors who have no qualms about loading the taxpayers of Rotherham with (very) long term debts.
    The tribal loyalties of ‘the working class’ will ensure this bunch of muppets is returned to power to continue to wreck our local economy.

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  3. Thank you for that post Colin it wassd very surprising to say the least, why did they have to go for commercial loans when money could be borrowed from the treasury at a lesser rate this shows just what they are incompetent and STILL unfit for purpose not even letting the people of the borough know just what debt they carry maybe they can borrow but sureley it would be better to tell us we will suffer for their incompetence

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  4. From what I can see the LOBO scandal goes way way beyond Rotherham council.
    http://lada.debtresistance.uk/local-authorities/rotherham/

    “Newham has the largest exposure to the type of loans called “Lender Option: Borrower Option” (LOBO) in the entire country. We have £563 million in outstanding loans. Some of these loans will not be paid off until 2070.”
    http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/communities-and-local-government-committee/local-councils-and-lender-option-borrower-option-loans/written/26101.html – this is a VERY interesting read!
    (I’m surprised that Councillors had such dificulty in getting details of the loan agreements)
    and linked to from here:
    http://www.parliament.uk/business/committees/committees-a-z/commons-select/communities-and-local-government-committee/inquiries/parliament-2015/local-council-bank-loans/

    This piece continues the story, and explains why Councils shied away from PWLB lending.
    http://lada.debtresistance.uk/newham-council-and-the-lobo-loan-scandal/

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  5. Regular reader points out the LOBO scandal as he calls it is wider spread than Rotherham does that matter we live in this borough not Newham which by the way is LABOUR like this one I take he will not mind services being cut to service a debt which will take many years to pay of. Maybe the council should let us know what they are doing and not just do as they please

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  6. Yes Mr Fiferalfa it is a scandal.

    Yes Newham is also Labour controlled, but did you read the piece I linked to, ?
    Cornwall Council – another council with huge expose on LOBO borrowing is a LibDem/Indie coalition!

    It is simply not a party issue as far as I can see.
    Borrowing decisions are not easy, and in a Council they are the responsibility of the Borough Treasurer and his department, not the Councillors. ( Newham is an example of somewhere were the Councillors were ultimately provided with the information to question the decisions of their employed “experts”. )

    Cipfa has a book for Borough Treasurers to read and digest:
    http://www.cipfa.org/policy-and-guidance/publications/t/the-prudential-code-for-capital-finance-in-local-authorities-2011-edition-book
    “The Prudential Code is a professional code of practice to support local authorities in taking capital investment decisions. Local authorities determine their own programmes for capital investment in fixed assets that are central to the delivery of quality local public services in accordance with the Prudential Code.
    ….
    _____________________________________________
    The Channel 4 Dispatches program that first cast light on the LOBO issue is currently not available,
    How Councils Blow Your Millions: Channel 4 Dispatches
    http://www.channel4.com/info/press/news/how-councils-blow-your-millions-channel-4-dispatches
    but…
    if anyone is really interested in the subject the researcher behind it – Nick Dunbar covers the story here, and it is really good reading:
    http://nickdunbar.net/2014/10/24/lost-lobos/
    http://nickdunbar.net/2014/12/16/lost-lobos-part-2/
    and several other further pieces on the subject.
    __________________

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  7. @rr
    Thanks for your post and I take your point about RMBC not being in isolation when dodgy loans were being being sold like hotdogs however I do agree with fiferalfa in that we are-and should be-concerned with the economic illiteracy of (in your words) RMBC’s Borough Treasurer but muppet councillors voted to accept his/her recommendations without serious questions thereby exposing their complete ignorance. You don’t have to be a financial wizard but you should ask why the council is being asked to mortgage your grandchildrens future.
    If we accept the Borough Treasurer did not withold any information and mentioned interest rate variances and the number of years over which the loans were to be repaid then there is no excuse for the gross incompetency shown by RMBC councillors who were/are charged with protecting public money.
    Perhaps a more pertinent question is how did they mismanage the borough’s finances to the extent that these loans were required in the first instance?
    Horse.Stable door.Bolt.

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    • Using the data from
      https://www.gov.uk/government/statistical-data-sets/live-tables-on-local-government-finance#borrowing-and-investment

      It appears to me that the overall RMBC debt per resident is of the order of £2200 .
      The Taxpayers Alliance (not my natural home), at https://d3n8a8pro7vhmx.cloudfront.net/taxpayersalliance/pages/4888/attachments/original/1417620577/councilliabilities.pdf?1417620577
      list the top 15 councils on the measure in 2013. Much worse than the figure a get for Rotherham.

      Doncaster – another borough I looked at comes out better at circa £1500 -but I don’t get the feeling that Rotherham is over-borrowed, relative to other councils.

      (but It would help if someone checked my back of an used envelope figures 🙂 ).

      The very real current problem appears to be income/expenditure , (… and of course debt servicing is an expenditure).

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    • Colin
      “… you should ask why the council is being asked to mortgage your grandchildrens future.”
      A consequence of the The Local Government Act 2003.
      “The Local Government Act 2003 changed the way that local authorities finance themselves. Legally bound to run balanced budgets (i.e. no deficits), local authorities in the UK have to borrow money to finance large capital projects like schools and hospitals – either from central government (via the PWLB), private companies (e.g banks) or other local authorities.
      In the past, a local authority needed permission from central government to take out any kind of loan but when the above act came into law on April 1st 2004 they were no longer subject to those rules. Instead, councils were to follow a Prudential Code to ensure their borrowing was prudent. (Available from the Chartered Institute of Public Finance and Accountancy for just £125.)
      While this putatively gave local authorities the freedom to manage their own affairs – they were now free to go to the money markets at their own discretion – it also arguably made them subject to the same kind of stat-juking short termism we’ve seen from companies like GM, Northern Rock and Kaupthing. Now that they were responsible for the numbers the pressure was to make them look as good as possible over the short term – keeping central government and the voters happy – regardless of the long term implications.”
      http://debtresistance.uk/wolves-weymouth-councils-living-borrowed-time/
      ___________________________
      You simply cant expect a Borough Treasury to have access to the talent you find in the City. So they take Treasury Management Advice – this is an FoI on RMBC’s Advice suppliers.
      .
      https://www.whatdotheyknow.com/request/please_provide_treasury_manageme_12#incoming-670626

      and here is RMBC strategy
      http://moderngov.rotherham.gov.uk/documents/s99051/Prudential%20Indicators%20and%20Treasury%20Management%20and%20Investment%20Strategy%202015-16%20to%202017-18.pdf
      from here:
      http://moderngov.rotherham.gov.uk/ieIssueDetails.aspx?IId=74046&Opt=3
      _____________________________
      But if you want a good read, try this – the 2nd paragraph on page 1 is brilliant:
      http://duncancampbellsmith.com/pdf/ftm_chapter_6.pdf

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      • @rr
        Good and interesting reading. It is a great pity RMBC’s Borough Treasurer and the robotic Labour clowns did not familiarise themselves with some of the documents you have highlighted.
        In the final analysis the Borough Treasurer was out of his depth and as a consequence misled the council IMV.
        Most Labour councillors will admit to not understanding finance but at the secret meetings they hold before the full council meetings where they decide voting strategy 99.99% of the time is to agree to accept and vote for the recommendations put forward by the Labour leader of the council who is equally ignorant of rate swaps, asset turnover, liquidity ratios and gearing.
        Thirty minutes spent researching on the ‘net before a council meeting where finance is on the agenda might help to improve Labour councillors woeful lack of knowledge about what they are being asked to vote for.

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      • @rr
        You wrote:”You simply can’t expect a Borough Treasury to have access to the talent you find in the City”
        Accepted but we are also discussing responsibility and from the link you provided:
        http://moderngov.rotherham.gov.uk/documents/s99051/Prudential%20Indicators%20and%20Treasury%20Management%20and%20Investment%20Strategy%202015-16%20to%
        ‘ Whilst the advisers provide support to the internal treasury function, under current market rules and the CIPFA Code of Practice the Council recognises that responsibility for treasury management decisions remains with the Council at all times.’

        RMBC Labour councillors are not up to the task of understanding finance and I stand by my previous statements concerning their financial illiteracy.

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      • Colin,
        I fully agree. The responsibility lies with the councillors.
        see my comment from 10:10 today (15th).

        I am most surprised that there has been apparently no mention in council meetings of LOBOs since Nov/2014, Nothing about the Channel 4 program, the Rothbiz article.
        Whilst I can understand Labour cllrs keeping their head down , Alan Cowles went though that “training” , I might have expected him to have raised the subject in council meetings.

        “RMBC Labour councillors are not up to the task of understanding finance and I stand by my previous statements concerning their financial illiteracy.” I really think we should be talking about “financial numeracy” – but it’s a bit late now. 🙂

        ____
        But look if we hadn’t had the 2007/8 crash – what would interest rates be now, and what would have happened to those loans?
        I’ve just downloaded the PWLB rates for the relevant years – I don’t do blame game, but I am interested in finding out more.
        __________________________
        This is a really good piece on the earlier Local Authority financial Swap screw up – and which in part lead to the LOBO one, and the appendix is a good introduction to some of the complexity of the markets.
        http://www.bankofengland.co.uk/archive/Documents/historicpubs/qb/1991/qb91q2250255.pdf
        rr

        .

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  8. Your continual support of this council is staggering I will go to the links you supply but as I said before it is thus borough my concern is with no other one , and as for blaming central government because of the change in the way councils borrowed money surely that was more reason to control spending. I appreciate councils cannot get top city brasins regarding finance but surely to approach an accountant would not be asking to much and for the COUNCIL to have it explained to them so they could then let the people of the borough know what was going on but then to asdk that of this council is asking for to much, it shows they are still incompetent and do not seem to care about the residents of the borough

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    • I am not supporting the Council, I am simply trying to understand and perhaps then clarify for others what has been happening.
      I am not blaming the Government either!

      Why does everything have to be a blame game?

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    • Thank you again for the links RR I just think that more care should have been taken especially after the banking collapse and that council should have taken advice even if just from an accountancy firm as it stands we are going to be in Derby for quite some time

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      • Advising on Treasury Management is not the role of an accountant, you need someone with a strong background in Banking and a genuine understanding of the financial derivatives markets and access to the market feeds particularly Bloomberg – (accountants are few and far between in wholesale and commercial banking).
        Some organisations set up specialised Treasury Management Advisory Services to give that advise to the Local Authorities, One of them was set up by a well-known Money Brokers, another was set up within Capita (Capita was originally part of Cipfa) – they would have had to buy in staff for that role. (They both appear in many of the links I provided above). The outfits provided, analytical information, direct advice, and an brokerage/intermediary service.
        RMBC had contracts with both of them over time, and would have followed their advice.

        Fundamentally if you want to see if something like a LOBO is good value – you need a Bloomberg terminal and near to PhD level maths skills. [and I’m not exaggerating!]

        So what more could they have done?

        Borough Councils don’t appear to be able to enter the bond market directly, which is were Corporates and National Governments go for funding. So they couldn’t enter the FRN (floating rate note) market directly.

        LOBOs were structured by the banks to be attractive as a means of borrowing for the Councils, initial rates were lower than PWLB rates, and yes, rates could increase on future interest settlement dates, but if that were to happen then the Council could pay back the capital element, terminated the deal and go elsewhere.

        From another of the another links:
        “HM Treasury and the PWLB
        Historically, councils have borrowed to fund social housing construction via 50-year fixed-rate loans from the PWLB (recently at between 3-5% interest). However, this arrangement meant council debt showed up on central government accounts.
        Local government financial experts have complained to HM Treasury that PWLB has recently failed to pass on current low base interest rates to councils.
        When George Osborne took office in October 2010, he increased the margin payable on PWLB loans to councils from 0.25% to 1% above the gilt rate – a move designed to net the Treasury an extra £1bn a year at the taxpayers’ expense. In the financial year 2013/14, the PWLB reported profit of £2.8 bn. Local authorities currently owe around £63bn to the PWLB. ”
        and
        “In 2007, HM Treasury/PWLB retrospectively changed the interest rates payable on existing loan contracts, a move that cost councils like Birmingham with large PWLB debt portfolios tens of millions of pounds. The net effect of this action is that local authority clients do not trust the government to deliver fair-price lending to councils.”

        Some lobo contracts done with Local Authorities were not plain vanilla – so called “inverse floaters ”
        – but that is for later – I’ve had two power failures today, and sleet and wind .

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        • Thanks RR for supplying the detail and links I have enjoyed debating as for central government with the £1.5 trillion debt we have as a country I would not trust them I checked and at least one third is owned by other countries if they decide to call them in God help us we could be in big trouble,sorry to hear about power cuts we have had none but weather cold

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      • “as for central government with the £1.5 trillion debt”
        That figure refers to all public debt using the “‘Whole Of Government Accounting’” methodology .
        ” I checked and at least one third is owned by other countries if they decide to call them in God help us we could be in big trouble”
        The vast majority of the debt is issued as Gilts – long term tradable securities, they cannot be called in by the person holding them. (they are not like an overdraft!!!!)

        http://www.dmo.gov.uk/index.aspx?page=Gilts/Gilts_In_Issue

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  9. A search for “lobo” on http://moderngov.rotherham.gov.uk/uuCoverPage.aspx?bcr=1
    brought up, as the most recent entry, an Audit Committee meeting of 19th November, 2014
    Present:- Councillor Sangster (in the Chair); Councillors Cowles, Kaye, Rushforth and Sharman.
    http://moderngov.rotherham.gov.uk/ieListDocuments.aspx?CId=414&MID=13002#AI70319

    The meeting included
    N20. TREASURY MANAGEMENT TRAINING BY CAPITA Richard Dunlop, Capita Treasury Management, delivered a training presentation […]
    Councillor Sangster thanked Richard for the informative presentation that he gave and his contribution to the discussion.
    Resolved: – That the training information be noted.

    This was followed by
    N21 MID YEAR TREASURY MANAGEMENT AND PRUDENTIAL
    INDICATORS MONITORING REPORT 2014/15
    Resolved: – (1) That the report on the treasury activity be noted.
    (2) That the report be referred to Cabinet to consider recommending that
    Council approve the changes to the 2014/2015 prudential indicators.

    Richard Dunlop, Capita Treasury Management – who gave the training, is this gentleman:
    Richard is a graduate of Leeds University in Economics and Accounting. He began his career as a trainee accountant at Richmond Council, qualifying as a CIPFA accountant in 1988. After transferring to work as a group auditor he moved into Deloitte Haskins & Sells as an audit supervisor and audit manager in the public sector practice.
    Richard began his treasury career after joining the Union Bank of Switzerland in 1993 and transferred with the public sector team to Capita Asset Services in 1997, latterly managing the local authority treasury team as well as acting as client manager. He was also a member of the CIPFA Treasury Management Panel for three years assisting with the development of the new Code. Richard joined Butlers in 2003 and Capita Asset Services in October 2010.
    http://www.capitaassetservices.com/products-and-services/public-sector/public-sector-advisory-services/technical-accounting-services/1645.cshtml

    Four years with UBS, presumably in London, I wonder what he was doing there… I can probably guess, but .
    (I did a fair amount of work for UBS back in the late 1980’s)

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  10. Pingback: Rotherham Council finances “dire” | Anston Parish Council Watch

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