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The government's consultation paper on local government investment is one of those gems the deep mines of Whitehall...
The government's consultation paper on local government investment is one of those gems the deep mines of Whitehall coughs up occasionally - an object lesson in how not to manage expectations.

At a stroke, the paper pulled off the trick of disappointing with one hand and making a rather large promise with the other.

While not officially stated, the government's clear message in the months leading up to the consultation paper was that money market funds were as near as damn it a done deal.

But there were a few signs the government's lawyers might throw a spanner in the works (PT, October 2001).

A bit of chin scratching about placing too much power in the hands of credit-rating agencies in effectively letting them choose the prescribed funds and, hey presto, it has all become a little bit too difficult to do anything about in the short term.

The fact MMFs appear to have been kicked into the medium-length grass is all the more irritating to fund managers when viewed against the new deposit facility proposed for the Public Works Loan Board.

A long-time object of hate for money brokers because of its cheap lending rates, the board will have even fewer friends in the City once it opens its doors to deposits from local authorities.

Writing in this month's PT, even Charles Dobson - usually a shy, retiring sort of chap - is moved to predict that such a facility will prove to be as much use to councils as 'the proverbial chocolate teapot'.

Whether the PWLB's deposit facility works or not, the fact remains that creating a state-run investment vehicle while, at best, delaying councils' access to MMFs looks a little odd.

After all, the government seems determined to force councils to use the private sector in areas far more sensitive than how authorities invest their money. A council can - and is sometimes ordered to - use private sector consultants to run its education service, for example, but is prevented from investing in a AAA-rated MMF.

But back to the management of expectations. Whatever the merits of MMFs, the signals from government were that they would shortly be placed on the list of approved investments.

Treasurers and professionals from the money market world put a lot of time and effort into persuading ministers access to MMFs was a sensible 'best value' move. They had every right to believe the argument had been well and truly won.

You do not promise a kid a bike for Christmas and then give him a bus pass - and an out-of-date one at that.

Rhidian Wynn Davies

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