Westminster COO on tri-borough initiatives, housing finance and derivatives

Barbara Moorhouse has almost 30 years of experience in both the private and public sector and before joining Westminster as the Strategic Director of Finance and Performance was the Director General, Corporate Resources, at the Department for Transport. Barbara was made COO at Westminster in September 2011. 

Room151: Chief Operating Officer is not a job title you see very often in local authorities – what does it entail and how did the role come about?

Barbara Moorhouse: The role came about largely from my private sector background. When I joined Westminster two years ago it was agreed that after 12 months we would review role and responsibilities with a view to them being expanded. It essentially covers finance and treasury but it includes a range of corporate services activities and it includes taking corporate responsibility for things such as the voluntary and community sector. My role now also covers quite a few projects that are being run on a tri-borough basis (with Hammersmith & Fulham and RBKC); pensions and treasury is one and the other one that’s making the headlines at the moment is the managed services procurement. So it’s a bit of a catch-all title reflecting the fact that my responsibilities are broader than when I joined Westminster.

R151: “HRA-day” is just round the corner: how is your strategy taking shape and what have the challenges been in gearing up for this narrow window of borrowing?

BM:  I think we’ve always had a pretty good business plan for housing – that doesn’t mean it can’t be improved – and certainly these reforms have had the stimulus of making us and our arm’s-length partners, CityWest Homes, look again at the long term business plan of what we need to do to maintain the stock, what the opportunities are around enhancing the amount of stock we have to offer – the whole gamut. The reform gives us the opportunity to update and extend our existing plan.

Since I came in to my current role, I wanted there to be a much clearer distinction between HRA or housing activity and the general fund. I think there’s an odd sort of semi-detachment about housing in local government, if you’ll forgive the pun. It’s an absolutely critical activity but because it has often been outsourced and financing arrangements are so separate it can often be not as integrated into the financial planning and management as I think it should be. So I want to have a very clear understanding of how the money sits between housing activities and the general fund and I want to make sure that having put both sides of the equation into the mix that we look at our financial planning on a much more comprehensive basis, taking into account what both activities are going to need over the longer term. And of course with the two-pool arrangement now we’ve been able to complete the separation of the financing which is something that, irrespective of this reform, I’ve always been keen to do. So housing is seen as a business segment in its own right with its own financial statements of cash, borrowing, revenue and capital.

Housing has a very long financial planning period and one of things I’ve found since I came into the public sector was there could be much more long-term financial planning – I actually think the discipline of looking over the longer period of time can be a very good thing for the general fund as well.

In terms of our approach to borrowing for this we’ve had to pay CLG £68m which we’ll be doing through the PWLB because the margin is so attractive. In general terms we’re starting to look at housing and other aspects of our capital expenditure to look at how we might want our long term borrowing position to be managed.

R151: What types of borrowing might you explore in the long-term?

BM: Clearly there is an increased level of activity around bond issuance. I think it’s an interesting opportunity but it needs to be price-competitive and that can be quite difficult at the scale individual local authorities might borrow. I know there is some talk about collective vehicles for bonds which we’re keeping an eye on. Clearly at the moment we’re in a position where there’s quite a lot of risk around local authorities in terms of funding reductions. Bonds are an inherently attractive thing to do so the question is then the timing for any particular local authority player and the pricing has to be right. So we’re keeping a watching brief on the whole issue.

R151: From a purely financial point of view, can you tell us what some of the challenges and advantages are to the tri-borough arrangement?

BM: It’s early days – we’ve only just brought the team together. Westminster is taking the lead in bringing the tri-borough arrangement together simply because traditionally, partly down to the amount of business rates we collect, we’ve always had a very strong treasury function and we happen to have a very strong superannuation committee because of the amount of financial specialists among our majority party members. I think there are two things we can see being attractive about the new arrangement. Firstly, one big advantage is resilience and expertise. Even a local authority the size of Westminster in terms of the cash balances we hold and our pension fund, even for us, making sure we have the the range and depth of  expertise that we need to carry out all of our day-to-day challenges is nontrivial. So by bringing three relatively small teams together we get a much more coherent management unit, we can develop the right expertise among that team, we’ve got a lot more cover and therefore we’ve got a much stronger set of specialist skills. I think it must be increasingly difficult for some of the smaller local authorities perhaps where they don’t have the benefit that Westminster has of being able to draw on the expertise of members who are equally knowledgeable on a number of key topics.

If we wanted to do a bond issue, for example, which would require a huge amount of work or when we look at our pension investment arrangements in all their complexity – for small teams that’s a lot of responsibility to carry and risk concentrated in one place.

The current arrangement will very much keep the pension funds separate and treasury funds will remain the responsibility of each council. We’re certainly looking though at things like the advisory relationships both for pensions and for treasury and we will in the fullness of time be looking at how we might bring those together and how we might gain advantage from higher scale and we’re starting to see the benefit of putting things out for a combined procurement in a number of areas across tri-borough. We’re going to take all of the things we do that require third party input and decide whether the arrangements we currently have should change. In some cases it might make sense to keep them separate for the three boroughs but I think we would expect to see the majority of external relationships affected in some way.

So in terms of pensions there will be three separate pension funds, three separate superannuation committees – the funds belong to the individual boroughs – but, mechanically, how we make all that happen and the parties we transact with to do it, will be subject to testing areas of common ground where we may be able to gain financial advantage from working in a different way. We’re also combining all the officer roles that support the three funds but not the funds themselves.

R151: Where do you stand on the issue of using derivatives to manage treasury risk?

BM: Our view is that for risk management reasons as opposed to speculation/investment reasons there’s a very strong case for derivatives in the sense that it enables you to manage risk positions and enables you to do so cost effectively. We understand the difficulty of trying to limit usage to risk management and avoiding speculation but we don’t think that’s a reason of preventing pensions and treasury functions with sufficient resilience to access a useful tool. If you’ve got the depth in your officer team to manage it well then derivatives, for use in risk management, we think, are very sensible and effective. Maybe it should only be treasury or pensions arrangements with that sufficient depth and who can demonstrate how they’re going to use the derivatives who should be given the authority to do so.

R151: What are you currently doing with your property portfolio/estate to generate savings and returns?

BM: We’ve been actively using our portfolio in a number of different ways for some time – there’s only so much you can do to generate revenue if you want to retain ownership of your property and you have to look at quite innovative and site specific schemes. Otherwise you can take a capital receipt if that enables you to achieve some wider objectives.

The area where we may be looking to do more is across the tri-borough which gives us opportunities to look at the delivery of services in a different way. Potentially, that may enable us to look at a tri-borough portfolio, rather than looking at them individually, and see if that frees up some building space. But it’s early days and we’ve not got to the point yet of looking at the portfolio completely holistically. But the property teams are looking to see if there are some obvious areas of advantage.

R151: Turning to your superannuation fund, with the exception of property investments, you don’t appear to have made any investments in the alternatives world (such as private equity, hedge funds, infrastructure etc). What’s the reason for that?

BM: Over the time I’ve been running the fund, in the last two years, we have been systematically and steadily looking at all of the alternative asset classes and in each case, based on conversations with the committee, we’ve decided ultimately that either we weren’t convinced by the returns or there wasn’t a great deal of genuine diversification on offer. We’ve looked at this area very actively but have decided that for the moment we’re not making any changes to the current profile of investments. That doesn’t mean to say that we won’t – it’s actively reviewed, periodically, and we are currently testing infrastructure investments given what’s happening in that field.