‘Knee-jerk’ reaction to Iceland needs rethink

Councils need to shake off an overly risk-averse mindset they have adopted since the Icelandic banking collapse, according to leading local authority treasury figures.
A debate at a finance conference organised by the Local Government Association this week heard that council approaches to investment are overly influenced by losses incurred during the credit crunch.
A number of speakers identified ways in which councils could maximise their returns, after being asked whether the mantra of putting security and liquidity before yield was becoming too restrictive.
Chris West, director of finance and legal services at Coventry City Council, said: “As we all know, there was a knee-jerk risk-aversion attitude adopted post-Iceland and we need to come out of that.
“Investment is a very risky environment anyway. We a need to have prudent, thought out, view of what we can do.”
He suggested that councils should consider lending to local businesses at commercial rates if they were struggling to get lending from banks, in order to get higher rates of return.
Duncan Whitfield, president of the Society of London Treasurers and strategic director of finance and corporate services at the London Borough of Southwark, said that such a model was already working well in Birmingham, where the council owns a venture capital firm called Finance Birmingham.
He said: “Finance Birimginham works well. It is not risking huge amounts of money, it recycles itself and it helps local businesses.”
He added that his council had also bought the freehold of its headquarters building in order to save revenue costs, but also as an investment.
Peter Stuart, vice president of the Society of District Council Treasurers and head of finance, ICT and HR at Mid Sussex Council said that councils should also consider loosening existing investment rules.
He said: “Some councils don’t invest with building societies because they are not credit rated. I don’t understand that myself. Local government professionals need to be a little bit less risk averse.”