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Council's crisis management

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Iceland’s banking collapse and the recession have exacerbated Uttlesford’s financial crisis, but new chief John Mitchell is confident of recovery.

Uttlesford DC’s headquarters is, perhaps appropriately, a former hospital.

The council has needed some intensive care in the past year as it has faced a financial crisis, found a large slice of its remaining money trapped in Iceland and been embroiled in a fight with airport operator BAA over the expansion of Stansted Airport.

The council’s name derives from the local Saxon hundred geographical area. It covers rural north-west Essex, with Saffron Walden and Great Dunmow being its main towns.

Last year’s financial problems led to the departure of 18 staff and the deletion of 30 vacant posts, leaving only 320 employees a figure that includes refuse collection and street cleansing services.

“Things are very tight,” admits John Mitchell, who took over as chief executive last summer following the departure of Alasdair Bovaird and several other senior staff.

Mr Mitchell describes last year’s financial crisis as “a body blow for the organisation because it just really came out of the blue”.

He says: “There had been failings for two or three years which senior managers and members were not aware of, and the extent of the problem was not immediately apparent until, in October last year, we realised we were heading for a£1.4m overspend if we were not careful.”

That is a fair slice of an£8m budget. Local government troubleshooter Bill Roots, who the council appointed to investigate what had gone wrong, later attributed this state of affairs to “a complete absence of financial control”.

Uttlesford’s troubles began in early 2007, when it found an overspend resulting from having twice double-counted planning delivery grant. A council report in July 2007 gave a flavour of how Uttlesford had conducted its finances.

It noted: “The late addition of assumed LABGI [local authority business grant initiative] grant inadvertently hid the fact that approximately£340,000 of additional budget increases had also got into the base budget.

“The frantic efforts made at the time of budget completion, including the changes required to rework to a 2% council tax increase, meant that this seemingly obvious fact was not reported properly in the analysis of variations.”

Mr Mitchell, a planner by background, joined Uttlesford in 2001 and became interim chief executive last February, taking the permanent post in July. He had thought Uttlesford over the worst of its financial problems this year when events in Iceland derailed the council. “We got an unqualified audit report this year, which we are very proud of, but it did go right up to the wire on 30 September,” he says.

It was only by a whisker. Uttlesford’s£2.2m investment in Landsbanki was due to mature on 15 October, but the bank failed eight days earlier.

Mr Mitchell says: “A year ago we had£6m with Icelandic banks and£1m with Bradford & Bingley, with the rest, the cash flow money, in a current account. Since then we had spread the risk and had only£2.2m in Landsbanki and£10m in British building societies.

“Landsbanki was AA+ rated until late September and by the time people were giving warnings we could not take the money out.”

This led to Uttlesford being named by the Local Government Association , along with Tamworth BC and Wyre Forest DC , as councils that would receive emergency visits from advisers.

All three reacted with intense surprise, unaware of why they had been singled out and concerned about the potential reputational damage. Mr Mitchell throws some light on this confused episode. He says: “I have never understood the LGA visits to ourselves, Tamworth BC and Wyre Forest DC. There were a lot of councils with proportionately higher exposure in Iceland.

“I got a phone call from the LGA one evening saying three councils were in special need of help and we were one of them. That was the first I knew of it, though I can see why ‘Uttlesford’ might set alarm bells ringing in the Department for Communities & Local Government, given our history.”

The meeting proved productive and one possibility that arose is a business rates holiday. Given the presence of Stansted Airport, its business rate income is quite substantial.

“It is being considered by ministers,” Mr Mitchell says. “Instead of us passing business rates income to central government we could keep it for two months, which would solve the problem with Landsbanki, and after that could pay everyone back.”

The money is still there, and the council hopes the Icelandic government will eventually return it. What is doing damage is the loss of some£200,000 in interest, a large sum given Uttlesford’s parlous finances.

Unfortunately for Uttlesford, its£1.9m capital fund is less than the ill-fated Landsbanki deposit. “I think the Audit Commission wants to be seen taking a firm line,” Mr Mitchell says. “But our capital receipts are not coming in because no one is buying council houses anymore.”

Since this interview took place, Uttlesford has applied to the DCLG for special treatment of its frozen assets. Local government minister John Healey confirmed last week he is considering the application.

This is not the only revenue source to fail with the economic downturn. Income from property search fees “has practically dried up” from£50,000 last year to less than£15,000 so far this year. “It has been a dramatic and sudden decline,” he adds.

The recession will make demands on Uttlesford that take it into uncharted territory.

It is fairly well understood what councils in deprived areas should do to help residents with debt, repossession, unemployment, homelessness and skills, but there is nothing deprived about Uttlesford and the council has never had to engage with these issues. “We are very prosperous. We don’t hit any indicators for deprivation. There is less than 1% unemployment even now.

“Yet when people lose jobs in prosperous areas they will not be able to draw on support networks because they are not there, so the council will be in the front line and we are gearing ourselves up to help people.

“A lot of need is invisible here, if you have a high-earner city worker who loses their job but lives in a nice house set back from the road you will not know they are in difficulty. It’s something we have not had to deal with before, so we are working with the voluntary sector to build up those networks up.”

One sign of impending trouble is that Uttlesford’s housing waiting list has doubled in the last few months, ending a situation in which the amount of affordable housing being built matched needs.

Mr Mitchell also expects a rise in homelessness numbers, housing benefits claims and council tax defaults.

Each time Uttlesford has started to recover, something Landsbanki, the recession, an adverse costs award over Stansted has pushed it back.

Mr Mitchell hopes for a period of calm soon to rebuild the organisation.

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