Many public service finance officers will have thought about ‘risk’ a great deal recently. In the past, the management of local authority, housing association or university reserves was a simple task.
Directors of finance put money into banks and waited for money — plus interest — to come out. It was that simple.
But now the same people are expected to be able to judge the robustness of the global banking system. Public sector finance officials are supposed to understand that when ratings agencies provide encouraging indicators about a bank’s solvency, they really mean ‘keep clear’.
Everyone now knows that Icelandic banks were dodgy. There were probably people who predicted the Titanic would sink. It is fascinating how many commentators always knew that Landsbanki deserved a ‘D’ credit rating, even though they kept quiet about it before early October.
In truth, the recent financial meltdown was a once-in-a-lifetime event that public bodies can be forgiven for having misjudged. The risk posed by the banking system in a friendly and well-governed country was minimal. After all, even the Barnsley Building Society appears to have put its money into Icelandic investments. Or, put another way, if the Icelandic banking system can implode, what other problems might face public institutions in the years ahead?
If this article had been written a year ago, its readers would have considered the author mad if it had been suggested that several British banks would soon be at risk of collapse. In much the same way, a piece published in August 2001 that suggested the World Trade Center would collapse as the result of two jets flying into its towers would have been considered alarmist. Risk has become riskier.
Local government, housing associations, universities and charities had attempted to spread their risk. As a result, many of them were exposed to Iceland. If such institutions now attempt to minimise their exposure to uncertainty, they will move their reserves to government stock. If this happens, interest paid will be lower and future spending will be depressed — or council taxes higher. ‘Safe’ money will mean low-interest investments. Critics of local government should be careful what they wish for.
There must now be a possibility that public bodies will make ever-greater efforts to minimise their exposure to risk. Across the board, there will be a desire to move away from innovation and any opportunity for those using public services to infringe any aspect of health and safety. If public institutions find themselves in the dock on every occasion they get something wrong, it will induce risk-aversion and timidity.
It is easy to see how school children are denied a frisson of danger or council managers seek to minimise any threat to their reputations. By far the easiest route is to stop people doing things and impede creativity. A closed railway or adventure playground is a safe facility. The Olympics will be ‘safe’ only if all the organisations concerned close things down whenever there is the slightest risk of a problem. No one will be criticised for stopping something.
The eradication of risk is not, as some commentators would claim, ‘political correctness gone mad’. It is a fair and reasonable response by public servants to the pressures brought to bear on them by the public and media.
On the one hand, people complain about councils behaving absurdly by banning Christmas trees because they are ‘dangerous’. Yet the same public will go to court to win damages for alleged injuries caused by broken paving stones. The police are prosecuted for health and safety breaches during the course of their normal duty.
Life will never be free of risk. It is an essential element in ensuring we all behave in such a way as to minimise the threat to ourselves. Some hospitals will make mistakes, there will be occasional train crashes and accidents will occur in playgrounds.
The challenge for public institutions is how to manage their exposure to risk and to ensure people understand what they can reasonably expect from them. Most of us understand that it is impossible to make life risk-free. Politicians and officials need to take advantage of this common-sense view by making clear that there will always be the possibility that things will go wrong. This is not to say that councils, health trusts and the police should not prepare for unexpected events.
Indeed, there is a positive role for public bodies in coping with major threats to local and national life. Emergency planning is a respectable and proper objective for local and central government. On the other hand, being held to account for every cat up a tree or each broken ankle is not.
The economic downturn that lies ahead could provide an opportunity for a realignment of public expectations about risk. Less money means a more sensible approach to public protection. The issue facing politicians is how to sell this view to the public.
