1 April 2010

Its the economy stupid, not an April Fool.

Over the next few months we are going to hear a lot about the economy, about how bad it really is and about who is to blame. The National Debt is going to be a hot topic of discussion and 'The Week' (Issue 759) carried a very good 'bluffers guide' to the National Debt and its implications and from it I quote the following:

How did we get into this mess?
It wasn't just down to the bankers. The cost of bank natinalisations, around £37Bn, is negligible in the general scheme of things. Ditto the cost of Britain's rather piecemeal fiscal stimulus scheme, that amounted to little more than a temporary VAT cut and the "cash-for-clunkers" scheme. The main factor feeding the huge deficit was the recession triggered by the banking collapse, during which Britain's output plummeted; but even before that crisis, the country was severely handicapped. Despite the opportunities afforded by the boom years of 2003-7, the budget hasn't been in surplus since 2001 - owing mainly to Gordon Brown's decision as Chancellor to channel wads of cash into public spending. In £2002, the deficit was £10bn; by 2008, just before the banks caved in, it had risen to £43bn.

Now, Gordon isn't the only politician to have squandered golden opportunities - he was following in the footsteps of the Iron Lady who blew the revenue from North Sea Oil on destroying the National Miner's Union (as well as what little remained of Britain's manufacturing base). But what, you might ask, does this have to do with Somerton? Well, the answer is simple. Somerton has its own, albeit smaller version of the National Debt which is, today, shored up and held at bay by the Precept. I've done a little animation which, I hope, will explain the way, year on year, Somerton's Precept has ended up being one of the highest, if not the highest, per capita, in South Somerset.

I've taken the modest Precept of 92/93 as a starting point and, as you can see, for the better part of 10 years Somerton's Precept was 'on the up' with the steepest hike being between 02/03 and 04/05 when it was approaching 500% of the 98/99 figure. Now, you have to remember that the Precept isn't 'earned income', its good old tax and it comes from you and me. Say it another way, it is earned income but we earn it and they spend it. So whilst Somerton's Town Council might have felt it was being ever so clever, what it was doing was creating its very own 'debt mountain', a mountain which the community is paying for today. (As a reference point, the black line shows what the Precept would look like if the 92/93 figures had been adjusted for 5% inflation - today that wouldn't pay the Council's admin bills!)

And what did this ever so clever Town Council do with the money? Well they went off and played at being property developers. They started buying bits of property and using good old 'cheap money' from the Public Works Loan Board to do it. They bought the land at Etsome Terrace (to build a community hall - which they didn't do) and they bought the Doctor's Surgery (a pretty crappy piece of real estate now under threat from the proposed health centre to be located on the Home Farm site, which we know won't happen but its such a good cover story) then they pulled off their piece de la resistance, the Tin Dunny. (Wasn't the Unicorn in there somewhere with a carpark deal?)

Now, the pedants in the community will note that I say they bought Etsome then they bought the Tin Dunny and will claim, quite reasonably, that the ever so clever Town Council will have paid off Etsome as a result of selling it and, in a sane world, the pedants would be right. But this is Somerton, where the clowns vie with the sheep for control of the mad-house and where the Town Council didn't bother about paying-off borrowings. No, Somerton will be paying for Etsome Terrace for a good few years yet.

So, when the Pied Piper of Pitney led his flock from the Edgar Hall last October, they left behind some intractable overheads and the new Town Council has to find some way out of the mess. I am not privy to the details but some raw figures give an indication of just how deeply Somerton Town Council or, more properly, the community (on whose behalf the Town Council were 'acting') is in debt.

Administrational overheads (staff salaries, office expenses, phones, insurance, official cars etc etc) soak up around £60kpa with the Edgar Hall costing more than £30k to keep the lights on plus the debt on Etsome Terrace (£23kpa), maintenance commitments (say £25kpa). There is also the possibility (a slight one) that an alternative location might be found for a new health centre in Somerton. If that were to happen then the Town Council would be in a difficult position with regard to its ownership of the current practice premises which only break even as long as they are occupied by the GP practice.

So well over half of our fabulous Precept is gone before we start and I'm sure that there are plenty more nasty financial surprises waiting in the wings. There are the usual maintenance costs, renewals and other overheads that will eat into the new Town Council's budget leaving precious little to be invested in the community. And I'm very tempted to ask what's new in that?

Let me direct you to an interesting movie. Its called 'Enron - the smartest guys in the room' and its all about the collapse of Enron. As a company, Enron was fine until the loonies took control and, after a few years, they couldn't leave because of the potential bad smells from the financial basement. Then the Senior Accountants blew his brains out and the whole thing came apart. Somerton's story is a little more prosaic - the implosion was accompanied by the gentle baa-ing of sheep.

Till the External Auditor reports, I'm Niall Connolly