Councils’ watchdog told of finance fears
Ryan TaylorThe council may be on the cusp of having to answer awkward questions after two elected members paid a visit to the Accounts Commission to air their grievances over how the SIC is being run.
Jonathan Wills and Allison Duncan last week headed to Edinburgh to meet officials from the public spending watchdog for local government.
They held a one hour meeting with the body’s secretary, Paul Reilly, to let him know of their concerns that the SIC was no longer committed to the agreement it made with the commission in 2010 to control its spiralling expenditure. The two have accused the council of failing to get its finances under control.
However the council’s political leader Gary Robinson says he is unconcerned by the visit, and insists the council is expected to set a balanced budget in 2015/16 for the first time since the 1990s.
Dr Wills told The Shetland Times their concerns needed to be brought to the fore. He stressed the two had paid their travel expenses out of their own pockets.
“Mr Duncan and I, at our joint request, had a meeting on Friday in Edinburgh with the secretary of the Accounts Commission.
“The meeting lasted an hour, and we informed him of our concerns, not only about the likely failure to meet the medium term financial plan, but also our concerns about governance with the council.
“You know what my concerns are there, that there is an undeclared political group operating and there are office bearers undermining financial policy and education policy.
“The secretary, Mr Paul Reilly, listened to us very carefully and we are very confident that the council’s independent auditors will take up our concerns.”
He said the meeting was to “acquaint” the Accounts Commission with the concerns they had “voiced publicly, and in the chamber”.
“So we don’t intend just to sit back and do nothing. We felt it was our duty, if we had those concerns, to acquaint the Accounts Commission with it, bearing in mind the solemn undertakings the council gave to the Accounts Commission in 2010 concerning financial management and transparency and openness of governance.”
Dr Wills has spoken several times by now of a “cabal” operating within the SIC. He repeats his claims in an outspoken letter to this newspaper, in which he warns the council’s reserves have dropped from £500 million to just over £200 million in the last 14 years.
Earlier this month the council stepped back from closing primary schools in Urafirth and North Roe, before immediately scrapping consultations over the future Sandness and Burravoe primaries, effectively causing the council’s Blueprint for Education to crumble at the seams.
The vote against closure was instantly met with hugs and cheers from concerned parents who had campaigned to keep them open. But it was far from popular with councillors Wills and Duncan, who branded fellow members as “cowards” and “idiots”.
• Full story in The Shetland Times, 28th November.
Ali Inkster
At any time during this meeting did you bring up the need for edinburgh to let us keep more of the money raised here to help balance the budget and pay for the things we as an island group will need for the future? Or wis it juist a greetin meetin whar du spat da dummy.
Jonathan Wills
No, we didn’t, because the council’s grant from the Scottish Government is a matter for the local government minister, not for the Accounts Commission, as an expert on council funding such as Mr Inkster surely knows. He will be pleased to hear that the council regularly asks for more money but he will also know that the Scottish Government, having successfully shielded local government from the full extent of the Cameron-Carmichael Coalition’s cuts for several years, is unlikely to be able to do this for much longer.
The spat dummy insult is getting a bit jaded. I suggest Mr Inkster goes online to look for a new one.
Ali Inkster
Then maybe you should have arranged a meeting with the correct departmental minister Jonathan, instead of pleapsin. You are more than happy to tell the English that scotland is going to keep Shetlands oil for itself to pay for stuff that they want in edinburgh and glasgow. Maybe you would like to explain to me and the rest of your employers why you are not willing to say the same to edinburgh to pay for the things we want?and need.
John Tulloch
Er, Jonathan,
I’m unsure I’d call seizing the SIC’s housing support grant – worth £40 million in equivalent cash, “successfully shielding local government from….the Cameron-Clegg coalition’s cuts”?
Gordon Harmer
I don’t suppose the Scottish government in all their wisdom freezing council tax for the last seven years has helped much either. Jonathan is beginning to sound more and more like Salmond, blaming everything on Westminster when a lot of the blame should lie at Holyroods door.
john irvine
So the 2 mutineers could not accept a democratic decision?
What little respect they had will now have evaporated into thin air.
Johan Adamson
What a shame. Just when we had gotten over a period of scrutiny by the auditors. This brings us right back into disrepute sooth (but should we worry?), showing we cant sort out our differences ourselves.
In my humble opinion, there is no cabal. There is a group of concerned and respected councillors who had no other way of sounding out their colleagues and finding their way. Having meetings before meetings to discuss things might be necessary to save time in the meetings and be allowed to question things freely without the press leaping on any one for being stupid, or for having an opinion other than the one prescribed by the established councillors. I imagine the cabal if it exists was necessary in the face of bullying by strong members. Discussion and opinions can only make things better. People no longer respond to ‘ do this or else’ and things must be agreed in a grown up way.
Johan Adamson
Lost in here is the very positive news that a balanced budget will be set for next year. This is great and surely leaves some breathing space for a cohesive plan to balance the budgets in future years.
Billy Fox
I have no intention of entering into debate with a pair of elected councillors who have no idea of collective and corporate responsibility and whose unwarranted actions illustrates their ignorance of the council’s true financial position, however a couple of points do need to be made.
As Johan Adamson points out the positive message is we will be setting a balanced budget next week for the first time since the late nineties, 1997 I believe. This council through democratic process, a huge amount of hard work from officers and all staff and commitment from the Shetland public has done a remarkable job, albeit with significant challenges still to face. The behaviour of these two elected members seeks to undermine this good work for whatever reasons drives them, I find their actions puerile and irresponsible in the extreme.
In a week of budget seminars from the 10th to 14th November where all the financial information across the entire council was gone over and discussed in detail, I do not recall either of these two councillors attending a single session, it is therefore no great surprise they display such ignorance.
Further, in the case of the member for Lerwick South in particular, one only needs to look at attendance rates for statutory meetings available on the council website,
http://www.shetland.gov.uk/about_your_councillors/Expenses.asp
Looking at this the public can make up their own minds on where his notion of meaningful corporate engagement sits.
Billy Fox
Depute Leader
Councillor for Shetland South
Chris Johnston
Mr. Fox, it is heartening to learn Council will set a balanced budget for 2015/2016.
The other matter is the reserves. Please comment on Mr. Wills’ assertion that reserves have dropped from 500 million in 2000 to just over 200 million today. 500 million in 2000 is equivalent to 757 million today. Does Council have a plan to increase the reserves?
Michael Garriock
Elected representatives are put in place to promote and fight for the will of their electorate, with the support of their electorate.
Can the two gentlemen involved provide convincing proof that their actions are a true and fair representation of the will of their respective electorates, and that they enjoy those electorates support in this fight?
Otherwise…..
Billy Fox
Chris.
The reduction in our reserve fund is not an assertion it is a fact and has already been reported in the last two and a half years, it is not news, although to some who do not engage as they should it may come as such.
From 2002 to 2012 some £325 million was drawn from our reserve fund to balance the books. This has been due to, amongst other issues, overspending, inefficient staffing levels resulting in a huge wage bill and lack of action in recognising and redressing the situation. Over the last ten years, for example, our fund managers have produced an average return of 7.3% per annum despite the downturn in the global economy. Therefore it is evident the depletion of our reserve fund has occurred because the capital has been eaten into.
However, it is not just this millennium we must look to; this profligacy goes back to the 1980s and is the legacy this council inherited in May 2012. In the final year of the last council (2011/12) £35.57 million was drawn down to balance the books, in short the council was heading for bankruptcy in less than five years.
We will set a balanced budget for 2015/16 with a sustainable draw on reserves but it is unlikely to be achieved the following year due to national austerity measures and other pressures. However, within the period of our Medium Term Financial Plan the aim is to balance our finances and, if not grow, then at least maintain a sustainable draw down and keep the reserve fund inflation proofed.
There are many external factors out with the council’s control which could affect us over the next few years and there are still legacy issues to be dealt with, it is not going to be easy but at least we have a plan and this council is in a more stable position and displaying a good deal of common sense and resolve to get us there. We are listening to communities and where possible and within reason we will mitigate our actions and look long term and across the council to minimise the pain.
Life is too short, especially once you have picked up your bus pass, and I simply would not be doing this if I did not think we were making headway in the face of a difficult job.
Billy Fox
Depute Leader
Councillor for Shetland South
Chris Johnston
Thanks for your prompt and reasoned response. I suggest that a budget is not balanced if it includes a draw on reserves, sustainable or not.
The fund managers seem to have done a credible job and should be commended. But, if Council continues to draw on reserves in the future it will be very difficult to rebuild reserves. Will you share your goals in this area?
John Tulloch
There will be interest/dividends from these funds which it would be reasonable to treat as council income and as long as withdrawals are low enough to allow the total reserves to increase faster on average than average inflation (say, inflation plus 1 percent), then there shouldn’t be a problem.
Over the long term the capital value of the funds should, ideally, be allowed to increase, withdrawals being limited to income which, itself, would need to be constrained, as mentioned above, by the condition of ensuring the total reserves increase over the long term, so providing steadily-increasing revenue.
This will take considerable political backbone to manage, given the ups and downs of the UK economy and global stock markets. However, the council is currently heading in the right direction, with further work, admittedly, still to be done.
It shouldn’t be difficult to produce a “Golden Rule” to ensure reserves increase, the difficulty will be getting politicians to stick to it – not mention getting Holyrood to keep their sticky paws off!
Geoffrey Ritch
7.3% seems like a pretty poor return for an expensive fund manager Billy. Had he simply bought an index fund tracking the ASX, and then gone to the pub for 10 years, he would have returned 6.0% over the same period – I could have done that for you.
Past performance is not a reliable indicator of future results and investors may not recover the full amount invested etc etc.
Chris Johnston
Over 10 years, 7.3% annual return yields 102% growth, while 6% annual yield only yields 79% growth. That’s 29% more growth for the fund manager route. If the fund manager’s fee is a small portion of the 7.3% annual return, the fund manager route offers greater growth.
John Tulloch
Given that a significant majority of fund managers fail to beat the index, it would seem the SIC’s fund managers haven’t done so badly.
The stock market is normally thought to deliver a long term average return of 8 percent, so, once again, given what has transpired during the last six years-odd, I’d say they’ve done pretty well to average 7.3 percent over the last 10 years.
Ali Inkster
You may have a different experience than me with fund managers Chris, I would love to find one where the fees are a “small portion of the 7.3%.”
John Tulloch
I know what you mean about fund managers, Ali, especially, with “funds of funds” and they’re all taking a cut.
Am I right in thinking the SIC’s fund managers’ fees are performance-related?
I would also hope, given the scale of the funds invested, that the SIC would have been able to negotiate a much lower fee rate than you or I?
It would be interesting if anybody knows what the fees amount to, to learn what they are.
John Tulloch
Well said, Billy.
A lot of excellent work has been done and the supertanker “SIC” has changed course.
A variety of opportunities exists for both saving and making money for the council/SCT, outside of Viking Energy and I hope and indeed, now expect, the council will be looking into them.
e.g. A facility to produce motor and heating fuel from gas for (especially, council) vehicles and buildings using gas from Sullom would provide a very significant savings for customers, as well,as turning a profit. It’s crazy shipping gas South by tanker and bringing it back in bottles.
There are some brilliant engineering entrepreneurs in Shetland who would surely, perk up at that suggestion?
If a gas pipeline to Lerwick Power Station doesn’t materialise, the facility could be built at Sullom and supplies delivered by road tanker, as in the case of my own next door neighbour.
Billy Fox
Chris,
A sustainable draw on reserves does constitute a balanced budget that is how any trust or fund operates, John o’ Arrochar explains it quite well in his 19:01 post on Dec 1st.
If you are familiar with the SIC website, which I think you may be, the answers you seek on future goals are publicly available in Agenda Items 4 and 7 for tomorrow’s council meeting. For the question you ask I would point you in the direction of the Long Term Financial Plan 2015-2050 – Section 11 – Financial Modelling, which is Appendix 1 in Agenda Item 7. I have attached a link for your convenience.
http://www.shetland.gov.uk/coins/agenda.asp?meetingid=4556
As I said before there are numerous external factors which we cannot control but at least we have a plan.
Chris Johnston
Thank you, Billy. I had reviewed some of the documents before I earlier replied.
Let me restate my queries:
1. Does Council intend on replenishing the reserves?
2. If the answer to 1 is yes then, recognizing that inflation nibbles about 2% of the reserves each year and past fund performance has been 7.3% yearly gains, how does Council plan to replenish the reserves while making continued sustainable draws?
Laurence Paton
With regard to council finances, can anybody elaborate further on what income SIC will receive from gas throughput , pennies per cube ?
“Shetland North councillor Alastair Cooper said the delay would impact on the council’s income from the plant, which will be based on throughput once gas starts to flow”
John N Hunter
Committee Document: F-072 Appendix 1.docx from the link quoted by Billy Fox above says ” The TOTAL gas plant is due to come on stream in 2015-16 and it has been estimated that there will be income of £1.349m during the year “. The Shetland Times in 2011 reported that TOTAL’s rent would be £550,000 so the balance must be made up with payments for throughput of gas.