Why Local Authorities need "honest serving" men and women with the tools to ensure effective scrutiny

I have just been re-reading an excellent hard hitting report published earlier this month by the Select Committee on Communities and Local Government.

The Select Committee examined the grossly inadequate scrutiny arrangements in many Local Authorities. The deaths in Mid Staffordshire hospital and child sex abuse in Rotherham Council were given as examples of failures in scrutiny.

"Clive Betts, Chair of the Communities and Local Government Committee, said:

Scrutiny is marginalised at too many local authorities, which in extreme cases can contribute to severe service failures, letting down council taxpayers and those that rely on services.

Scrutiny of those in power is a vital part of any democratic system and has huge benefits for all. We are calling on the Government to strengthen guidance to make overview and scrutiny committees truly independent of those they are charged with holding to account and to make sure the process is properly funded and respected.

Only by rebalancing the system and ensuring scrutiny is held in high esteem will we see better decisions and the outcomes that residents who pay for council services deserve."

Clive calls for a much needed change in culture which is welcome but to be honest this will need Government action since many Councils (not all) dominated by strong Executive models do not believe in Scrutiny and deliberately block it.   While there are many "honest serving" Councillors from all political parties up and down the Country trying to properly scrutinise their Executive this report reflects their frustration. 

I think that there are many lessons to be learnt from this report for my own Council, Newham. However we are not the only one with inadequate scrutiny arrangements. 

Report recommendations 

1.That overview and scrutiny committees should report to an authority’s Full Council meeting rather than to the executive, mirroring the relationship between Select Committees and Parliament. 

Agreed. Reports are sent in Newham Council to the Executive or "via the Executive". 

2.That scrutiny committees and the executive must be distinct and that executive councillors should not participate in scrutiny other than as witnesses, even if external partners are being scrutinised. 

Agreed. In Newham executive members are allowed to vote for Scrutiny Chairs. Also, Executive members take part in Audit Committee and the Investment & Accounts Committee (and even chair both Committees!). 

3.That councillors working on scrutiny committees should have access to financial and performance data held by an authority, and that this access should not be restricted for reasons of commercial sensitivity. 

Agreed. Even Scrutiny Chairs are blocked from receiving "sensitive" financial information (for example, the report on £52 million loss on the London Stadium deal.) The Executive decides if and when information is realised. 

4.That scrutiny committees should be supported by officers that are able to operate with independence and offer impartial advice to committees. There should be a greater parity of esteem between scrutiny and the executive, and committees should have the same access to the expertise and time of senior officers and the chief executive as their cabinet counterparts. 

Agreed. This doesn't happen in Newham and many other Councils. Executive members have refused to attend Scrutiny meetings in the past and requests for Officers to attend have to be made via the Executive. 

5.That members of the public and service users have a fundamental role in the scrutiny process and that their participation should be encouraged and facilitated by councils.

Agreed. Recently the public (and media) were banned from attending (never mind participating) in the Newham Council Fire Safety in Tower Blocks scrutiny. 

6.That overview and scrutiny committees should be given full access to all financial and performance information, and have the right to call witnesses, not just from their local authorities, but from other public bodies and private council contractors. They should be able to follow and investigate the spending of the public pound. 

Agreed. See 3 above. Council special purpose vehicles (Local authority trading companies etc) provide services and control £ billions of assets and need to be fully scrutinised.

7.That the DCLG works with the Local Government Association and the Centre for Public Scrutiny to identify councils to take part in a pilot scheme where the impact of elected chairs on scrutiny’s effectiveness can be monitored and its merits considered. 

Agreed. As long as this doesn't mean things are kicked into long grass. 

http://www.parliament.uk/business/committees/committees-a-z/commons-select/communities-and-local-government-committee/news-parliament-2017/scrutiny-committee-report-17-19/

I have other concerns as well such as how committee members of Scrutiny are appointed in the first place and scrutiny arrangements being subject to political whips. I will be sending this article and links to the Chair of Newham Overview & Scrutiny and ask to meet the Committee to discuss the report and its recommendations.  

Mansion tax would affect just four families in every thousand

If you own a £2million home you can afford to pay the Mansion Tax to help save the NHS. As Ed said it's Pure and Simple. 

Amazing that the Tories think its okay to throw poor people out of their homes if they can't pay the bedroom tax but want rich millionaires to to pay less income and property taxes.

Check out the truth about the tax here. I know that some have genuine concerns about this policy but I cannot wait for a Labour Government to introduce this measure. The report below shows that it will only affect 4 families in every 1000.  I am bothered about the needs of the many and not the rich. It is simply about time that the rich and wealthy in this county paid their fair share of taxation.

"A study compiled for the Evening Standard newspaper suggests that Labour’s proposed mansion tax would only be paid by 110,000 households, of which 86,000 would be in London.

This needs careful examination, as there is obviously a concerted campaign going on against this proposal.

First, DCLG statistics suggest that there are 27.7 million homes in the UK. The Mansion Tax would be levied on a small minority of very expensive properties worth more than £2 million. 110,000 households equates to 0.4 per cent of the UK total – just four households for every thousand.
Second, despite misinformation to the contrary, there is actually a very close association between owning a house worth £2 million and having a very high degree of income and other forms of wealth. In blunt terms, a mansion tax would be a tax on the rich".

hat tip stronger unions Paul Sellers

Why is there no sense of crisis about the future of the LGPS?

The AMNT yesterday sent in a response (below) to the Government (DCLG) consultation on proposed new regulations on how to run the new look Local Government Pension scheme (LGPS).

The LGPS is collectively the biggest funded Pension scheme in the UK and the 5th largest in the world. There are at least 4.6 million people in the UK who are members of the £180 billion LGPS. Yet hardly anyone seems to understand that unless we are able to control costs and increase return then its entire future is in doubt.

"AMNT comments on LGPS consultation on amended Governance Regulations"

Introduction

The Association of Member Nominated Trustees is an organisation run by and for member‑nominated trustees, representatives and directors of pension schemes, both defined benefit and defined contribution, in both the public and private sector. Established in 2010, the Association now has about 350 members from occupational pension schemes with collective assets of approximately £250 billion.

These pension schemes range in size from £5 million to around £40 billion; they include defined benefit schemes that are fully open and those that are closed to further accrual or closed to new members. 

The AMNT membership includes LGPS member nominated representatives or observers. 

General Comments

Firstly, the AMNT wish to express their concern and disappointment that the government has not followed the proven private sector model of pension trusteeship with regards to the LGPS. Instead of a single partnership body made up of employer and employee representatives working in cooperation each of the 89 LGPS in England and Wales will have legally separate pension committees and pension boards.

The pension committee will continue to have no meaningful beneficiary representation in law. The only members of this committee that will be allowed to vote on decisions under local government legislation will be Councillors. It is likely that Member nominated representatives will continue to be “allowed” to participate and observe in a minority of LGPS schemes but there will be no legal right for MNTs or any beneficiaries to play a full role in the running of the scheme in the same way that their counterparts do so in the private sector.

The pension board will have some form of beneficiary representation but it is entirely unclear how these “employee” members will be selected or how its lawful role to "advise and assist" in the running of the scheme will actually happen in practice.

This appears to be confusing and unnecessary duplication. Instead of the usual co-operative approach found in the private sector trustee model, there may be conflict and disagreement between pension committee and boards. It is also unclear how such disputes and conflicts between a committee and board will be managed.

We do not understand why there is a requirement for board members to have prior experience. This is not expected of councillors on pension committees. Why is this different from the private sector where new trustees are given 6 months to gain relevant training and experience?

More detailed regulation is also needed with regard to ensuring that employee members of pension boards get sufficient time off to carry out their functions and that neither they nor their employers suffer  a financial detriment.

There is a clear democratic deficit compared to private sector pension funds. Why don't those who actual pay their own money into the pension have effective representation? Why should public pension funds be less democratic than private sector funds? The whole point of beneficiary representation is that you are more likely to get accountability and good governance since it is their money and their future pension at risk.

While in the past there was an argument that beneficiaries did not bear any direct financial risk this is now not the case. Under Treasury rules if the aggregate employer contribution for future accrual exceeds the cap of 13% then LGPS employees face benefits being reduced or contributions being raised. This could mean that more people would leave the scheme because it had become unaffordable and therefore risk the future sustainability of the entire LGPS.

It is therefore imperative that the LGPS is run as effectively and efficiently as possible. Costs must be controlled and return maximised. However, since the proposed scheme regulations are permissive, they do not comply in our view with best governance practice found in the private sector. How are funds that are being run inefficiently and poorly governed to be stopped from dragging down by poor returns the whole LGPS and breaking the employer cap?

We understand that a number of LGPS are already predicting that they will breach the 13% (19.5% with employee contributions) cost cap. When you think of the consequences if this happens then there should be a sense of crisis about the proposed arrangements and the overriding need to have accountability and good governance.

We appreciate that pension boards have to be in place by 1 April 2015 and some of the issues that we raise are the result of the Public Service Pension Act. However, there is a growing body of evidence that the proposed arrangements are contrary to European law and directives with regard to legal separation of the fund from the employer. This could mean further significant change.

Local Government Pension Scheme (LGPS) Governance Regulations 2014

(These are my personal comments I sent on 15th August to the Department Communities and Local Government consultation on their proposed LGPS draft regulations on governance. These regulations are due to be in force by October 2014. For what it is worth - I think they are a complete dogs dinner. Read why.)

"I have been an observer then member nominated representative on a London Local Government Pension fund since 1996 (and contributor since 1993). Lately I have also been an admitted body representative on that fund. I have also been an elected Councillor member of another London pension committee since 2010 and an employer nominated trustee on a private sector open defined benefit scheme.

I am responding as an individual and these comments are in my personal capacity only.

I must admit to being surprised at the statement next to the "impact assessment" that these regulations have no impact on business nor the voluntary sector.  As someone who also works in the voluntary sector I think that for organisations who are admitted bodies of the LGPS (including private employers) that the possible impact of these regulations is significant.  Especially on deficits and employer contributions. I understand that up to 25% of LGPS members do not work directly for local authorities.

I must confess to being very disappointed with the draft regulations. Instead of adopting the proven private sector pension trustee model of employers and employee representatives being jointly responsible and working in partnership to run their schemes, we are going to have overlapping and confusing 2-tier governance arrangements.

The proposed draft regulations themselves are contradictory and conflicting.  The overriding purpose of pension boards was supposed to be about making sure that the local government pension scheme as a whole is transparent, run efficiently and gives value for money. Unless the scheme nationally contains costs and maximises a responsible return then good funds will be brought down by the badly managed funds.

Employers will only pay a maximum of 13% contributions for future service and if nationally this cost ceiling is breached then this means that employee contributions will have to rise or benefits reduced. Which will then result in employees leaving the scheme and put its long term future at risk.

The huge cost of meeting existing liabilities must be kept to a minimum as local authorities face further cuts to budgets.

While not being too restrictive the regulations must ensure that the pension boards meet at regular times, are accountable, have sufficient resources to do their job and most importantly must have the legal powers to make sure that the funds are run properly.

I understand that there are potential legal challenges to the whole governance structure due to a failure of the government to implement European directives on pension funds?  If this happens this whole process could prove to be a waste of time and money.

I do not understand why there can't be one governance board with 50/50 employer and employee representation as was originally intended? There are far too many barriers to the Secretary of State approving joint committees.  Even if s/he does then the inherent contradictions of holding a "decision making" and "assist" (or even scrutiny) meeting at the same time are likely to prove insurmountable.

Nor can I understand why councillors cannot be members of the board as employer representatives? What is the conflict?

Who indeed can be "employer representatives" on a pension board? Since if council officers are to be the employer representatives there is a possible further conflict since I understand that officers cannot be members of council committees? Has there been legal advice on this point?

The requirement that members of the board have relevant experience and capacity is unnecessary and counter productive.  Why should public sector pension schemes be treated differently that private sector? In the private sector all trustees have up to 6 months to gain relevant skills and knowledge. You do not need to be a financial expert or professional to be effective on a pension board. There is too much "herding" in the LGPS. In fact it is an advantage to have non professionals who will challenge the status quo and ask difficult questions.

I think that as a matter of principle we should be supporting equality duties being part of our remit and I do not think that this will be a too onerous a commitment.

While it is an improvement on the existing ad hoc system I think that the proposed structure and regulations is frankly a mess. While there is a time tabling issue due to enacted legislation the national pension board ought to be reviewing the whole issue of governance as a matter of urgency.

The recent legal advice that found there is no statutory under pinning of the LGPS if a fund was to fail is yet another powerful reason to make sure that all funds are run efficiently and  are well managed.

John Gray

Sack 80% of fund managers? Real facts (and beer?)

Why do pension funds (and insurance funds/individuals) pay the fees for active fund managers when the evidence suggest they are not worth it?

Michael Johnson is again making a well made point using evidence from the LGPS....check out also here

"We do not need 80% of active management"

Michael Johnson draws some conclusions following DCLG’s review of the Local Government Pension Scheme. This article originally appeared in the Financial Times on Monday 12 May 2014.

Share the article here: http://bit.ly/1laYjqO

"Recently, robust, independent and damning evidence emerged that skewers any justification that active fund management of listed assets is worth the candle. For dispassionate observers, it has been long overdue, but the source was unexpected: the UK’s Department for Communities and Local Government (DCLG).

The catalyst was a growing concern for the sustainability of the Local Government Pension Scheme (LGPS), a disparate collection of 89, predominately sub-scale, funds in England and Wales, with total assets of roughly £180bn. It is one of the world’s largest occupational pension schemes. DCLG issued a consultation paper proposing that all of the £85bn of externally actively managed listed assets should be moved to passive fund management, to reduce costs.

In addition, all “fund of funds” arrangements should be replaced by one investment vehicle for alternative assets. Total cost savings of £660m per year are expected, and £6.6bn over the next 20 years – monies that would no longer reach asset managers’ pockets; a saving for taxpayers. But even more important than this, the underlying research report, independently produced by Hymans Robertson, has been put into the public domain.

Sponsors, trustees and members of private sector schemes are now free to digest evidence derived from both the huge LGPS data sample (the LGPS dwarfs any other UK pension scheme), and internationally. They will find that, on average, any additional performance generated by active management (relative to the benchmark indices) is insufficient to overcome the additional costs. It is better to invest passively, tracking the appropriate index.

Active fund management has finally been revealed for what it is: a web of meaningless terminology, pseudoscience and sales patter. For too long, active managers have been allowed to shelter behind their standard disclaimer concerning the long-term nature of investing. But the long term never arrives. It merely shuffles forward; there is never a day of reckoning.

In the meantime, ludicrously expensive talent is deployed in the pointless pursuit of continually trying to outperform one another. Worse, it is a giant negative-sum game in which the savers pay the price, their hard-won capital persistently eroded by recurring charges and fees. Data shows us that the dominant contributor to total returns is the asset-class mix, not individual stock selection. In practice, some so-called active managers are actually “closet trackers”.

Once their high costs are deducted, the outcome of sub-index performance is no surprise. To misquote Sir Winston Churchill: never is so much being taken by so few from so many, and for so little in return. But what of the so-called “star” managers?

Every quarter, F&C Fund Watch publishes consistency ratios measuring the proportion of funds in the 12 main IMA sectors in the UK that produced top-quartile returns each year, over the prior three years. In the first quarter of 2014, of 1,069 funds, only 46 consistently produced top-quartile returns (ie 4.3 per cent). Using blind luck, one would expect 17 funds to achieve this, which leaves 29 fund managers out of a universe of 1,069, roughly 2.7 per cent, who could legitimately claim that their success was down to skill.

Over the same period, only 188 funds (17.6 per cent) consistently produced above-average returns; 881 funds did not. In addition, the last quarter’s results are towards the top end of historic ranges. A stunningly small number of funds beat their peers on a regular basis, but the crucial point is that at the start of any three year period, no one knows which funds they will be.

Hindsight being useless, this is active fund management’s Achilles heel, and the crux of the debate. Costs are controllable but, by and large, investment performance is not. This is not a recent revelation.

Warren Buffett said: “By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals.” Meanwhile, by publishing the underlying research, DCLG has introduced a degree of transparency hitherto unseen in public service pensions.

But more significantly, it has acted on the evidence that lays bare the nonsense that is the active fund management of listed assets. If private sector schemes were to follow DCLG’s leadership and common sense, the implications would be profound.

Millions of scheme members would benefit, and it would become apparent that we do not need 80 per cent of the industry. The remaining 20 per cent should focus on adding value in the unlisted asset arena that lacks the indices required by (passive) tracker funds to replicate investment performance, principally “alternative” assets, property and emerging markets and smaller companies funds.

Indeed, DCLG’s actions mark a seminal moment for all occupational pension schemes. Activity in the Twitter sphere would appear to corroborate this view. Jeremy Cooper, who chaired 2012’s review of Australia’s private pensions system, said: “What an astounding result. It will be a global litmus test.” DCLG should be congratulated.

 Michael would like to hear your thoughts. He can be reached at: majohnson@talktalk.net

(there is a dispute about whether Abe Lincoln ever said "...and beer")

Tories Abuse Civil Service for Party Political Propaganda

Hat tip to Captain Swing for this tweet tonight by the Government Department Communities & Local Government in favour of Tory political propaganda about freezing Council tax.

It called on people to "lobby" their councils in support of Tory policies?

The DCLG twit(ter) claimed that this "infographic" was made at no cost?  So I said did it appear by "magic"? Did no-one do any work to make it appear?

This Government should not be using and paying civil servants to push controversial political agendas on official sites. Ignoring the fact that this particular argument is ignorant and stupid (in my opinion) if you really believe in a politically neutral civil service (never mind "localism") you should not allow them to run such blatant political propaganda.

That is the job of the Chief DCLG village idiot, Pickles and Tory central office, not paid civil servants.