He really is a cretin, isn’t he?

It is quite interesting to note that there is quite widespread anger that Kensington and Chelsea council has reserves available for it to use of £274 million according to its last accounts.

As a matter of fact local authorities need reserves. They are solely dependent upon revenues they can raise from local taxes, central government and the supply of services. They can borrow, but only with difficulty in most cases. And the reality is that they face unpredictable demand for their services and central government has a poor record of responding to their needs in times of crisis. So, they have reserves. These are, literally, a contingency fund for the unforeseen.

Kensington and Chelsea has made this fact visible and it seems that people do not like it. What they resent is that they have paid tax without a purpose. But let me put this in context. All that the council is doing is what George Osborne wanted to do with government and which the Tory right still wants. It is living within its means. It is balancing books. It is building the roof for the rainy day whilst the sun shines. It is being a good householder. This is prudence at work. And people resent it.

And the answer is that they are right to do so. Why, they ask, should government save for us? The sentiment that has been hit upon is the feeling that this is government taking people’s money and putting it out of action. And that is right. That is exactly what running a government surplus, at any level, does. It takes money out of the economy and enforces saving and the result is less economic activity than there should be.

What the fuck does he think K&C do with their reserves? Ski down the piles of cash?

They’re out in the money market, being borrowed by other people. Seriously, what is this goddamned cretin talking about? You can see “interest received” on their bloody accounts!

For fuck’s sake. This is a man who teaches sodding economics to people?

23 comments on “He really is a cretin, isn’t he?

  1. Reserves are a good idea, but one could challenge whether £274 million is the right amount. Mr. Ritchie doesn’t notice the amount, though it seems rather large.

  2. TMB – Indeed. I was concerned that Murphy was actually beginning to make sense!

    He seems to think that local authorities should spend in excess of receipts, borrow money until all their lines of credit are exhausted, then go cap-in-hand to the next tier of government, demanding that they crank up the printing presses.

    That worked out so well for Greece, didn’t it?

  3. As someone who spent many years doing budget things in a local authority, the size of the reserves ought to reflect the scale of the responsibilities and relevant liabilities and possibilities. £274 million does sound a lot but it you weigh it against all the buildings, other infrastructure, variable staff pay and pensions effects and the many and various legal liabilities etc. etc. then it is not. If no reserves then if a very big bill comes along without warning, as has happened in the past, then that is what a reserve is for.

  4. Gamecock said:
    “Reserves are a good idea, but one could challenge whether £274 million is the right amount.”

    It does seem to be a lot; their total annual spending is less than £200 million.

  5. Most local authority pension schemes are very aggressively funded and plenty are in the red even so. If the accounting was a bit more prudent then deficits would be larger.

  6. Thank you Ken. Sorry, the page I was looking at only showed the net costs (after rents, fees and charges received). Should have realised it was rather low.

    But actually the £67m is a surplus, not a deficit (only government accounts could show a surplus as a negative).

  7. Ken/Richard

    only government accounts could show a surplus as a negative

    It’s always looked odd to my eye.

    Unlike the business world, the public sector often uses strict Dr/(Cr) notation throughout, even in outward facing documents and reports.

    And which I am guessing is simply down to no real sense of the “commercial” (ie of “revenue less expense = profit”). Everything is “expenditure spent against budget”, where the budget is funding (or income).

  8. I can’t figure out what his argument is. The logical conclusion of it would be surely this is an event which would justify spending some of the reserves. I don’t know whether there are rules which govern whether that is possible, but it is certainly a point that could be debated given the apparent chaos there was in the initial relief effort. But as Tim has pointed out he’s gone off on one about some bullshit or other. Yep he’s a cretin.

  9. Er, no, he doesn’t teach economics.

    He teaches bigotry:

    “intolerance towards those who hold different opinions from oneself.”

  10. Reserves held for events such as – having to pay legal costs, damages, compensation etc.
    We’d all be screaming if the council had no reserves at all. As it stands they have what? a few months reserves?

    Which would be deemed pretty much a requirement?

    I have had terrible trouble getting charities I’ve worked with to work out reserves and darn well use them. Too many think they can just magic the money up.

  11. Does the £274m include working capital or don’t councils bother with it?

  12. @martin – I have had terrible trouble getting charities I’ve worked with to work out reserves and darn well use them. Too many think they can just magic the money up.

    per spud u dont like the govt has a magic money tree so as Grenfell is a national emergency per spud with no reserves the govt could just turn on the presses and magic up the cash. Remember thinking logically and carefully about spud posts is a lost cause – he just magics up the answers based on his feelings and whatever will get him in with the great unwashed.

  13. BiND

    Does the £274m include working capital or don’t councils bother with it?

    I can’t bothered to go through the detail, but (in summary) the Balance sheet on P43 shows:

    Roughty £0.3bn of cash/short term investments, equivalently financed by “usable reserves” of £0.3bn.

    Relatviely small net working liabilities (creditors exceeding debtors), and

    £1.67bn of long term assets (buildings etc), less £0.35bn of long term borrowing and long term liabilities,

    financed by £1.2bn of unusable reserves.

    So yes, usable reserves (represented by cash), on the face of it, and not “disproportionate” given the scale of the organisation and its assets. It actually all looks quite healthy. There is also quite a bit of info on there on reserves / links elsewhere re reserves policies if one is interested.

  14. “I can’t figure out what his argument is.”

    Nor me. He threw me a bit by being slightly more coherent than normal, using paragraphs, not calling anyone a cunt, etc but at the end I still couldn’t work out what the point was.

  15. I’ve always been told to have 10% of turnover as reserves, which I do with my personal accounts, and roll over unused reserves to the next year. When I was on a large met council the turnover was about £2.5bn, so reserves of £274 looks ok to me. A housing association I was on also had a similar ratio. Put in context, it’s one month’s revenue.

    Repeating other posters’ comments, WTF does Tuppence think K&C would be using to pay for the fall-out from Grenfell if they *didn’t* have reserves?

  16. “Nor me. He threw me a bit by being slightly more coherent than normal, using paragraphs, not calling anyone a cunt, etc but at the end I still couldn’t work out what the point was.”

    I thought he was making the only point he ever makes – the curajus state should spend more money and fuck the neomliberal consequences.

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