Flogging Hackney - Lightning strikes twice

The year is 2001 – Hackney council is in disarray - Waste is piling up on the streets, exposing the tip of a financial iceberg in meltdown. Central government stepped in with an unprecedented directive to balance the books. Management were disposed, replaced with accountant consultants who found a hole in the coffers the size of £21 million - a sum that was to later balloon to a massive £70 million. What followed left the social fabric of one of the poorest areas in Britain in tatters and a council in debt and vulnerable to outside forces with an agenda. The government.

This was not meant to happen again.

Forward wind ten years and Communities Secretary Eric Pickles announces to the country the biggest cuts to council budgets in recent times. Once more, Hackney council must slash their budget, and more so than nearly all councils, and with remarkable coincidence, to the tune of £70 million. Andrew Robertson investigates the devastating effects of the cuts a decade ago to present a warning of what lies ahead for the people of Hackney.

When Hackney Council announced in 2001 they were in financial chaos, residents raised weary eyes to the heavens. Another year, another crisis.

England's fourth poorest borough has a past littered with accounts of fraud, corruption and mal-administration. However, despite the welfare needs of its residents, the council's crippling debt was used as an excuse to strip the borough of voluntary sector premises and prepare public services for the private sector. The result; a cascade of property disposals leading to the closure of scores of community resources from nurseries to ethnic community centres, legal advice centres to libraries.

Hackney’s debt is historical

During the late 1960s and early 1970s, local authorities borrowed money from central government to finance housing projects. Around thirty such blocks were built in Hackney but investment in their upkeep was not maintained. Many subsequently became uninhabitable, and many were knocked down or placed in line for demolition. This left Hackney in debt, with fewer rent streams to service that debt. In a scenario familiar to third world governments, the interest on the debt grew larger than the money available for repayment.

A December 2000 policy and finance committee report, said: "In total, the council pays around £68 million in interest on capital debt. The majority of this interest is related to housing debt."

Based on this figure and multiplied by the average interest rate in 2001/02 of 8.6 per cent, the amount owed by the Council would have weighed in at a hefty £584.8 million. A sum which led groups within the borough such as UNITE and HackneyNot4Sale to campaign for the government to "Dump the Debt"; a localised equivalent to the global "Drop the Debt" lobby. However, like the World Bank and IMF, the government had no intention of dropping the debt, preferring instead to provide assistance only if the recipient followed a strict privatisation agenda.

As one community activist put it: "Hackney can't turn down money from government because this puts control back at the centre. The council succumbs to whatever government policy is."

When Tony Elliston became chief executive of Hackney Council in 1995 the Labour group had divided into two camps and the following elections delivered a hung council. Elliston presided over £30 million worth of cuts in public services, which saw the closure of the school bus service, several nurseries and half the borough's fourteen libraries.

He then resigned his position in 1999 just prior to a damning OFSTED report with claims that central government were politically interfering with council affairs.

"They had a number of education authorities they could have gone for, all equally bad," Elliston told me. "They could have done Islington or Tower Hamlets. That's not to say Hackney's education system was not bad. But it was not worse than the others. It was singled out because of political reasons. The official Labour group had been ousted and a breakaway group had taken over. Political knee-capping, that's what it was."

One departmental head after another followed Elliston. "Every single one had left within a year," he recalls. "The [government] inspectors started coming in, it was like a kind of dying animal and everyone was keen to get in and sink their teeth into it."

Various inspections took place, initially by a government body called the Improvement and Development Agency, which reported a "most grave and serious situation". This led the central government to impose section 114 of the Local Government Finance Act 1988, which prevents "any potentially unlawful expenditure ... likely to exceed resources available." This draconian measure again left the council in paralysis. Dustcarts sat idle in the depot awaiting repair, maintenance on people's homes were put on hold and all staff on temporary contracts were laid off.

Next came the Audit Commission, who conducted three inspections within nine months, concluding the council would need "significant support", and recommending that government should intervene. "We have decided that it is now appropriate that the secretary of state consider(s) exercising his function under Section 15 of the Local Government Act 1999 to give a direction to the Council". It was the first time Section 15 had been invoked.

Under government directions the local authority began recruiting senior staff, starting with Max Caller as managing director in June 2000. Despite gross financial problems at the council, Caller's starting salary was £150,000.

Furthermore central government paid over £3.5 million in consultancy fees associated with Hackney's restructuring. A sizeable portion of this sum went to consultants Deloitte & Touche, who recruited seven temporary financial managers into each directorate. According to invoices I obtained, some of these consultants were taking home at least £2,420 a week. Their job, according to a government press release, was to "provide solid financial expertise and help tackle the borough's financial crisis."

The financial controllers took up their positions just prior to demands from government for the council to produce a three-year budget strategy. In its first year alone projected savings of £13 million meant another round of cuts and closures of vital services. More nurseries closed, surviving libraries were again under threat, Home Help support was reduced to visits of half an hour, grant money cut by 38 per cent, clothing awards for children reduced, play group funding slashed and the criteria for cheap bus passes tightened.

Workers who maintain services were also targeted. In October 2001, the council imposed a 90-day rule on all sections of the workforce except those in education. This gave workers 90 days to sign a new contract stipulating poorer pay and conditions, or face dismissal.

Members of Unison initially refused to sign and some were sacked before being offered their same jobs back with reduced workplace conditions. At this point most signed up to the new regime but sent in letters along with their contracts stating they were signing under duress. This led to a series of successful employment tribunals for unfair dismissal.

Residents and workers alike were hoping for support from central government to prevent a continuing decimation of services. When then local government minister, Nick Raynsford, announced a £25 million support package in January, it seemed the government had answered their prayers. A spokesperson for the former Department of Transport, Local Government and the Regions, which has now been broken up, said the money was to "protect local government services for the people of Hackney". However this financing came attached with nine conditions, one of which stated that it could not be used to "offset failure to achieve savings". Crucially this stipulation meant the money could not be used to prevent cuts in services.

A further condition attached to the financial carrot required the council to "establish the new body for education services in the borough". Subsequent to OFSTED's condemnatory report on Hackney's education service, central government ordered the council to privatise two key areas of the service. Former Schools minister, Estelle Morris, announced the decision: "The secretary of state will now direct Hackney to sign a contract. This is the first time we have been able to take decisive action, thanks to the new powers we took in the School Standards and Framework Act 1998."

Nord Anglia Education plc were awarded contracts to run the School Improvement and Ethnic Minority Achievement services. However, in a further OFSTED report written over one year after Nord Anglia took over, it listed school improvement as "functions, which are still unsatisfactory". Furthermore the Labour councillor, Ian Peacock, told a Select Committee on Employment and Education, that Nord Anglia "has not made any difference in terms of day to day accountability."

As privatisation was unable to bring the desired results, the OFSTED report recommended "radical change". A joint team put together by the department of education and skills decided that a non-profit organisation should run education services in the borough, so the Hackney Education Trust was formed.

Parallel to that period of decision-making was an appraisal of how the financial services in the new trust should be run. For this analysis, the government selected PricewaterhouseCoopers (PwC) who concluded that long-term financial ownership, along with pensions, insurance and treasury management, should be carried out by Public Private Partnership (PPP). A spokesperson for the Office of the Deputy Prime Minister denied that by hiring PwC, government were forcing privatisation on the council: "Decisions on outsourcing are rightly the responsibility of local authorities."

However, backdoor expansion of private involvement in the new education trust could prove risky, as was noted by the joint team in their report:" The Audit Commission has signalled weaknesses in the capacity of the council to manage adequately contracts for outsourced services."

Certainly, the failure of past privatisation has left its mark. Much of the 2001 crisis could have been avoided had the outsourcing of social security benefits to a company called ITNET not taken place at all. The contract began in 1997 and by the time it was brought back in house four years later, it had cost the people of Hackney £36 million. Elderly people were left paying their rent out of their winter fuel money in fear of eviction, as benefit claims remained unprocessed. The Benefit Fraud Inspectorate stated in a report on ITNET that an estimated 64,112 outstanding items relating to 33,347 claims were left undone.

Distraught residents desperately turned to the Hackney Law Centre and Citizens Advice Bureau (CAB) for help. According to the director of Hackney CAB, Sola Ayobade, both organisations felt the impact of ITNET's failure: "You can't even think about how it was. It was the evictions. Then the landlords would come in and say look we're about to lose our properties because we can't get our rent on the tenants we've got in. So we had all parties coming in, it was quite horrendous." In the cruellest irony, funding for both Hackney Law Centre and the CAB were cut because of the debt created by ITNET's failure.

The CAB, who had already closed one of its two Bureaus in the borough to new clients, now faced further financial pressure after being threatened with a further 30 per cent cut in their grant. Meanwhile ITNET survived the ordeal, announcing a year later pre-tax profits of £12.6 million. In 2004 ITNET were taken over by the government’s favoured public sector services contractor Serco. Further unfortunate irony came after the collapse of Railtrack. Hackney Council had invested part of its pension fund in 60,000 Railtrack shares and lost £100,000 when the rail company collapsed.

In order to balance the books, Hackney Council set up a "Property Disposal Programme" which was set a target of £70 million over the financial year of 2001/2, but only managed £50 million. Once again central government stepped in to provide an "Unsupported Credit Approval" loan to bridge the gap of £20 million. This effectively put the council into yet more debt.

When selling assets local councils are supposed to achieve "Best Value" on all properties sold. However, minutes of meetings not in the public domain but seen by myself, show that Hackney Council sold a package of nine buildings in Broadway Market, south Hackney, to a property development company called Stirling & Investments Ltd for a total of just £250,000.

At the time of purchase, the main shareholder of the newly formed company was Donald Beskine, an accountant working for the British government on a scheme to marketise eastern Europe. He was also principal advisor to the Bulgarian Economic Development Ministry and the Russian Federal Commission on the Securities Market. As managing director of the International Centre for Accounting Practices Beskine was employed by the European Union, USAID, World Bank and OECD to attract foreign investment into Russian enterprises. Sterling's bid was preferred over that of the Notting Hill Housing Trust, a London based housing association.

Despite a necessity for affordable social housing in the area, these one bedroom studios were being sold at £150,000 each. Stirling & Investments Ltd. also received regeneration money to renovate the buildings although Hackney Council claim to have no records of exactly how much.

Indeed Broadway Market became a battleground in a property war involving 3 main developers. We have already seen the bargains offered to Stirling & Investments Ltd. Now another place named Francesca’s café came under attention for a Roger Wratten. The café was sandwiched between a hairdressers and an old pub, called the Market house, both of which he owned. His intention was to buy the property and wed them together to build flats or a theatre. Unfortunately for Roger, a certain Sicilian named Tony Platia had run the place for over 30 years, earned a modest living, and had no intention of giving the property away. I spent many a day in his café researching the unfolding disaster of Hackney. Tony had paid his rent always on time and had become a popular member of the community. Having committed so much time to the place, losing it felt like a crime, but there was hope.

Tony had first refusal on the property and repeatedly tried to buy it. In 1999 he sought to buy the freehold, and came close to achieving this when his confidential arrangements were leaked to a certain property developer who owned both adjoining properties. We shan’t name names. From this point on all attempts to buy the property were obstructed. Despite this, in July 2001, a report was compiled to be put before the regeneration Sub committee which recommended the immediate sale of the property to Tony Platia. The committee never got to see the report and the Council has never located its whereabouts.

The case went to Shoreditch County Court and to the dismay of Tony was lost, and he was evicted. The property was sold in 2003 to Roger Wratten and Tony was evicted. It wasn’t quite over. Tony refused to leave, the local community squatted the café and it opened again for business. The story was all over the press, and Tony even received a visit from the Mayor of Sicily.

This however is Hackney, and following a year and a half of wrangling and failed communications, on the 21^st of February 2005 somebody cut the locks securing the shutters and threw in 3 fire bombs. Two weeks later, a team of bailiffs and 50 uniformed police ended the matter.1

Tony now runs a fruit juice stall on Market days outside his former café.

Residents and social groups across the borough argued vehemently that the Council was targeting asset sales on properties which were vital community resources. Atherden Nursery in Clapton was one such property. Whilst up for sale, the premises were squatted by parents of children attending the nursery in an effort to prevent closure. When the rest of the local community proved overtly supportive of the squatters stance, the council backed down and promised to reopen the nursery once vacant possession was secured. The parents moved out only for the council to renege on its promise and close it. Later in the year the property was sold for £420,000.

And there were plenty more closures to come. The three-year budget strategy at the time and agreed with central government involved £13 million of cuts in 2002, £18.2 million in 2003 and £22 million in 2004. As the Council desperately attempted to address its internal problems within the strict parameters set by central government, the future of public services and voluntary sector community projects in Hackney looked increasingly bleak. Certainly, promises that public services were to improve looked much like Atherden Nursery did after my final visit. Empty.

Stripped bare over decades of financial corruption, and failed policy and management, Hackney is battening down the hatches for another round of attacks on their services.

1. http://www.hackneygetsrippedoff.blogspot.com/ - local advocate Arthur Shuter