The Sunday Times has got hold of some leaked emails about the Lex Greensill story which is rapidly turning into a bit of a scandal. I confess it surprises me because I really didn’t think David Cameron was likely to be involved in it but it is starting to look quite serious for him. The piece begins, by claiming the "controversial financier forced through a government loan scheme from which he directly benefited after citing the personal authority of the prime minister at the time, David Cameron."
This Greensill fellow used to work at Citibank and way back in 2011 got involved with a scheme pitched by them to the government called supply chain financing. This was an idea to ‘speed up’ payments to government suppliers. It looks like something we used to call ‘factoring’. It was part of the efficiency drive to save money although I’m not clear how it did that. It only seemed to avoid some suppliers having to take out bridging loans or extend overdrafts.
In industry, if a company has invoiced for goods or services but can’t get payment for whatever reason, they can ‘sell’ the invoice for, say, 95% of its value to a finance business who then get paid by the customer. This is how it works. I've never been involved with it myself and you would only do it if you were desperate.
Amazingly, this is what Citibank proposed and it was eventually applied to some NHS services including pharmacists. A lot of civil servants were against it and others are asking why government, which can borrow money at basically zero interest rates, couldn’t just speed things up. Also, the contract with Citibank was placed without any bidding process.
"The government has admitted that Greensill’s former employer, Citibank, was handed a deal to run the scheme, processing billions of pounds of payments from the NHS to pharmacists, without any contract or tender.
"It can also be revealed that the cabinet secretary at the time Jeremy Heywood, who brought Greensill into Whitehall having worked with him at a bank, later nominated him for a CBE for “services to the economy”.
In the beginning, Greensill started his own business, and acted as a sort of middleman between Citibank and government. A lot of it appears to have been done by Jeremy Heywood, the cabinet secretary at the time, who has since died of cancer, with Cameron’s help and support.
"Heywood, 49, had met him [Greensill] during a stint at a Wall Street bank. Now he wanted officials to welcome the man from down under into Downing Street so Greensill could promote his big idea: using private loans to help pay government suppliers on time.
"His role was not announced publicly or internally. The government claims that the Cabinet Office efficiency and reform group, run by [Francis] Maude, approved the position in February 2012, although officials dispute that claim.
"According to several sources, this unorthodox arrangement was classic Heywood. The reformed chain smoker, they said, had a second weakness, which was his soft spot for business people’s grand designs. He prided himself on being the bureaucrat who got things done. It was his intellectual imagination and openness to ideas that made him invaluable to successive prime ministers from Blair and Brown to Cameron."
"But the intensity of Heywood’s patronage of Greensill raised eyebrows. On January 1, 2012, he was promoted to cabinet secretary, the most senior civil servant in the country. Six weeks later he nevertheless found time to chair a meeting with representatives of all the big banks to discuss Greensill’s ideas.
A report by civil servants rejected the plan. “The concept of supply chain finance [SCF] has so far not found favour with the potential beneficiaries and we are concerned about how it might be implemented.” They added: “SCF does not encourage operational and financial efficiency ... and does not promote the principle that everyone gets paid at the same time.”
"Yet what really irked civil servants was the ambiguity of his [Greensill] position. After Greensill had left Citibank, it was unclear whose interests he was advancing: his former employer’s, his own firm’s or, as one would expect, the taxpayer’s."
