Why was it no great surprise to find out that West Sussex county council have some money tied up in Icelandic banks?  The council say that this will not have an impact on frontline services, and play down the significance in several ways: it is not in an Icelandic bank but in the UK arm of Landsbanki, it is only 5% of their funds in the banking system, and its a paltry sum compared to their £1bn annual revenue budget.  There are, of course, other ways to look at it.

First of all: don’t they read the papers?  As far back as April there were stories describing Iceland as “a toxic hedge fund built on debt that could be about to go spectacularly wrong”.  I am expecting any minute now to hear Henry Smith blaming Gordon Brown, the world economic situation, the European Union – in fact anybody not associated with WSCC for this but while it is true that WSCC can’t be held responsible for the precarious state of the international economies ((Even Richard Symonds hasn’t blamed them for that. Yet)) they really should be keeping an eye on what is going on and if an entire country’s banking system gets described as the ‘canary in the coalmine’ and is tipped as the most likely to collapse, should they still have nearly £13m in that system six months later – even if it is only in a UK subsidiary?

So just what sort of person still puts money into the Icelandic system under those circumstances?  Obviously somebody who does not keep themselves abreast of the news, but we can discount that excuse: surely WSCC make sure that their financial interests are looked after by people who know their own business. That leaves another alternative.  An interesting bit from the Guardian story in April is this:

Officials in Iceland argue that the country is under siege by unscrupulous speculators looking for the next quick buck. Despite its size, a meltdown in Iceland has the potential to severely damage confidence in the markets; one economist compares it to the canary in the coalmine.

So there you have it.  If you discount the excuse of ignorance you are left with the excuse of being an unscrupulous speculator. That sounds more like the county Tory party.  The WSCC financial statement makes a great fuss about how they made 5.88% on investments in the year but only paid 5.73% on short-term borrowing and 4.62% on longer-term borrowing.  The council has debts and it has cash.  Instead of using the cash the pay off part of the debts they invest it in the hopes of making a profit: they are gambling and may have lost.

How much is £12.9m anyway?  WSCC say that it represents less than 5% of funds they have in the banking system, implying that there is at least £258m in various banks – which sounds about right: they had about £253m in cash and investments in March  There are some other contexts you could put it in:

• It is £.7m less than the amount paid in interest on loans last year
• It is £3.1m more than the largest of the 13 short-term loans the council took out last year.
• It is about twice what the council’s overspend was on the Fastway project
• It is eleven times what councillors’ allowances were last year.

That £253m in cash and investments has a context as well. You have to put it alongside the £334m of long-term borrowing, leaving a net debt of £81million.  In a gross oversimplification it is a bit like a person having a morgage of £334k, and having £258k cash in the bank.  Should they cut the mortgage down to £81k?  Invest the cash and hope for better returns?  Do a bit of both?  What would you do in that situation?

Looking through the council’s last financial report is quite scary really, especially the balance sheet.  It makes good reading for anyone finding it hard to sleep.  Skimming through it just reminds you of what a huge organisation it is, and how much of our money passes through its hands (or slips through its fingers?).

The debt figure alone is mind-boggling.  Back in 2001 the debts were about £60m and the investments and cash in had were also about £60m.  In seven years the debt has grown by £274m (nearly £40m a year) and the net position gone from neutral to a net debt of £81m.   Isn’t that the sort of time you think about using some of your cash to stop the debt growing, or reduce it, instead of gambling on making a bit of profit in the margins?

I can’t see Micky Mouse giving up his Henry Smith watch any time soon!  At the same time, it is almost certain that next year’s county council elections will see Henry and his Tories still in control, maybe with an even greater stranglehold over control, and no doubt they will see that as a just reward for their sound financial management…