We’re on a cash knife edge because of slump (From Worcester News)

We’re on a cash knife edge because of slump

6:20pm Wednesday 12th September 2012 in News

TURMOIL in the country’s economy means “every investment” the city council makes is a risky one.

That’s the verdict from finance chiefs who say the council is walking a knife-edge when it comes to the money markets.

As your Worcester News first reported in June, bosses have raised £173,000 in cash by temporarily investing about £50 million on the money markets over the last year.

But the average rate of return has plunged in recent years – as recently as four years ago, the council made £727,000 profit from the scheme. The average return rate on all its investments was 1.1 per cent, down from four per cent in 2008.

The figures were debated during a meeting of the performance management and budget scrutiny committee at the Guildhall , Worcester.

Lesley Meagher, finance services manager, said: “Gone are the days when only certain investments are risky – at the moment, every investment is risky. There’s been £173,000 of interest received during the year, but a few years ago it was as high as £700,000, so there’s been a significant drop there.

“We are watching it closely and a lot of our investments are short term ones.”

During the discussion, Councillor Robert Rowden said: “I see we make a lot of investments with Santander.

“If it went under, I very much doubt the government would bail it out, perhaps we should not invest there.”

Ms Meagher said it was typically seen as an ‘overnight’ investment by the council, in common with other banks. Every year, finance bosses draw up a strategy for lending money and employ money market brokers to secure the best rates of return.

The council uses cash coming in on a regular basis, such as business rate collection and council tax income, in order to fund it.

They avoid leaving it in ISA accounts because historically, they tend to get better rates of return by moving money around in multiple short-term investments.

The committee agreed to note the report.