Can the public and banking sectors learn to understand each other before self financing begins, wonders Louise Dunne
At a Chartered Institute of Public Finance and Accountancy conference in July, which explored the challenges arising from the new forthcoming housing revenue account self–financing regime, many of the presentations given were by financial analysts from the big banks and investment houses.
One of the bankers’ presentations opened with a £13 billion pound sign clearly flashing for all to see. £13 billion is the total amount those HRA local authorities requiring a buy-out from the current subsidy system will need to raise, either from the Public Works Loan Board, a government body which lends money to councils at low rates, or indeed from the private sector. Justifiably, some of the bankers and analysts in attendance were clearly rubbing their hands at size of figures being discussed.
As the day got underway, however, I became increasingly concerned that whilst everyone in the room had the appearance of being from the same planet neither community, the finance community on one side and local authority officers on the other, actually understood the others’ world and the others’ day-to-day business.
Streams of jargonised terms ensued throughout the day - ‘funding diversity at comparable rates’, ‘soft benefits in relation to basis points’, ‘secondary market liquidity’, ‘deep investor base’, ‘non-financial counter parties’, ‘creditspread and secondary trading performance’ - with so little understanding, common language or even common aims, can these two ‘partners’ plan to get into bed in the very near future - and stay in bed for possibly thirty years or more?
These two mighty sectors have very limited experience of each other’s language, culture, ethos or business and service drivers. Whilst it is evident that many in the banking sector are keen to learn more about public sector provision, the gap between them is still one of gigantic proportions.
Meanwhile the clock is ticking for local authorities towards late March 2012 and settlement day – the deadline for loan portfolio agreements. Local authorities have a huge challenge ahead of them to understand the world of high finance and loan portfolios, and to marry those choices with the aspirations of the communities they serve.
To what extent local authorities have fully grasped the rigours of due diligence, credit ratings and the minutiae of the financial assessment that their business plans will undergo, to secure a bond issue, for example, is open to question. Moreover, certainly within the very limited timeframe that HRA self financing presents, to what extent they are prepared to invest the necessary resources to meet these requirements, at a time of unprecedented cuts in spending, has to be a challenge.
Does the finance community understand why people with no hope of ever getting a bonus, a pay rise, or possibly even a thank you, tirelessly work over and above their contractual hours? Why it is that council staff so obviously care about the quality of life for a group of citizens that they themselves live miles away from and have no connection to, other than work?
When these two tribes get together, I wonder will the score actually be £13 billion of bond issues and loans, or nothing at all?
Louise Dunne, is lead housing advisor for CIPFA and the Chartered Institute of Housing’s HRA self-financing information