A Financial Genius

It seems, or so we are told, that the mayor’s new financial tzar has found a way to solve all of her money problems.

It’s simple really. Just sell everything.

In the bad old days, under Wales, when there were no tax rises and budgets were balanced; the council balanced its books by rigorously testing what it did and how. 

There were lots of changes and many things were done differently. But services were not axed and residents did not have annual tax hikes.

Wales used prudential borrowing to invest on behalf of the council. This meant that commercial operations were purchased inside and outside Newham which returned an income, over and above the cost of borrowing. In time the cost of borrowing would be reduced to zero as the debt was repaid and Newham would have an income producing asset that could be used to offset costs or invest in new programmes.

It appears that Cllr Ali has spied this nest egg, with assets in excess of £1bn, and thought that this would be a good way to bail the mayor out of her spending crisis.

Ali’s plan, we are told, is to divest (sell) Newham’s assets to cover the shortfall in revenue income.

There are a couple of problems with this, which readers have very likely already jumped ahead to.

The first is that the net benefit is likely to be small; many investments will not have had time to appreciate greatly.

The second is more serious. To realise major returns, he will have to sell off the physical assets without repaying the loans with which they were purchased. This means that a shrinking asset base will be forced to cover a debt that grows relatively larger. This is a recipe for bankruptcy. Not in the next couple of years, but that is the direction of travel.

Unless of course, some of our elected representatives choose to challenge him about this.