8th May 2009
Audit Commission set to withdraw Iceland investment report ‘slur’ on Kent and Havering councils
By Tash Shifrin
The Audit Commission has been forced to back down after naming Havering and Kent councils as ‘negligent’ in a report on local authority investments in Iceland.
The watchdog branded seven authorities negligent in its March 26 report, Risk and return, because they made deposits in Icelandic banks after September 30, when the commission said the risks were ‘widely known’.
Both the London Borough of Havering and Kent County Council reacted furiously, with Havering taking steps towards a judicial review. Kent also considered legal action.
In negotiations with the two councils, the watchdog has now offered to withdraw the term ‘negligent’.
Citing the commission’s own words, Kent chief executive Peter Gilroy said: ‘We are encouraged by the tone of these negotiations and by the fact that the Audit Commission has proposed “to issue amendments to the report, publishing and circulating them accordingly. They would remove the word negligent from paragraph 45 and table 3”.’
Havering said the watchdog had suggested replacing ‘negligent’ with ‘unfortunate’. But the council argued that this did not go far enough.
It has written to commission chair Michael O’Higgins demanding a public apology, and to Local Government Secretary Hazel Blears, calling for an investigation of the circumstances surrounding the drafting and publication of the report.
Council leader Michael White said he was pleased the watchdog had ‘withdrawn its unwarranted and unjustified slur’. He told Public Finance: ‘It’s done the council tremendous damage. I believe they now realise they were wrong. I’m very clear that they’re backtracking on this in a big way.’
He hoped the commission would apologise, but while negotiations were continuing, legal action was ‘still an option’.
White said: ‘If they think we’ll go away, they’re mistaken.’
In his letter to Blears, White said the council had ‘evidence that the Audit Commission added the negligence charge late in the drafting process, and in the face of concerns expressed by the Local Government Association’.
E-mail correspondence seen by PF confirms the LGA had opposed naming the seven. In an e-mail to the commission’s David Caplan, sent on March 20 – six days before the report was published – LGA finance director Stephen Jones wrote: ‘We are concerned about the inclusion of the list of the seven bodies. In our view, this has the potential to change the dynamic of the report from a generic “lessons learned” study into something that focuses on the authorities named’.
He urged the watchdog to ‘avoid naming’.
Local authorities in England have a total of around £1bn locked up in Iceland. Councils that broke their treasury management policies but did not invest after September 30 escaped the watchdog’s wrath.
Havering says it did not receive a warning alert about the status of the Icelandic banks until 15 minutes after it had placed its £2m deposit on October 1.
Kent admits to ‘human error’ in placing a £3.3m deposit on October 1, but insists it was not negligent.
The Audit Commission, which has £10m of its own money stuck in Iceland, has admitted it was not aware of problems with the Icelandic banks until October 6.
An Audit Commission spokeswoman said negotiations with Kent and Havering were continuing but added: ‘No decisions have been taken. Until a decision is made we are not going to comment.’
