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Councils 'not reckless with cash'
Councils seeking Darling meeting
2008-10-10 00:41:06 UTC
2008-10-09 04:50:43 UTC
(about 20 hours earlier)
Local authorities have not been "reckless" in investing more than Â£840m with Icelandic banks that have now failed, the government has said. Local authority leaders are seeking an urgent meeting with the chancellor after it emerged at least 20 councils have cash in troubled Icelandic banks.
Deposits from more than 100 councils could be at risk, the BBC has learned. Their total investment amounts to hundreds of millions of pounds and they are asking the government for the same protection promised to personal savers.
Ministers have promised "case-by-case" help in England and Wales, but say in Scotland the issue will be dealt with by the Holyrood administration. Iceland Prime Minister Geir Haarde said his government is working to repair relations with Britain amid the crisis.
Gordon Brown said he was considering "further action", but the government is not offering to guarantee the deposits. The Treasury said it was looking into the issue of protection for councils.
'Not pleasant' Gordon Brown announced legal action would be taken over Iceland's failure to guarantee compensation for UK customers in its banks.
The prime minister told the BBC that the Icelandic authorities' handling of accounts had been "effectively illegal" and "completely unacceptable". The Local Government Association (LGA), which represents councils in England and Wales, says it has identified more than 20 councils which are believed to have deposits in Landbanksi or Heritable, the firm's UK bank. They include Kent County Council, which has Â£50m invested with Iceland-based banks.
The government has frozen the UK assets of Icelandic bank Landsbanki, saying local authorities will benefit from this. They have failed not only the people of Iceland; they have failed people in Britain Gordon Brown class="" href="/1/hi/uk_politics/7662027.stm">Iceland's actions 'illegal' Council investments
But Iceland's prime minister, Geir Haarde, said it was "not very pleasant" to have laws designed to deal with terrorists used against his country. The LGA is still trying to work out the total sums involved but believes that, Kent aside, many of the councils had investments in the "single figure millions of pounds" but others had deposits "running into the low tens of millions".
So far local authorities in England, Wales and Scotland have revealed that they have deposits worth Â£842.5m in total. A small number of the councils involved have already been identified. Westminster City Council has revealed it had deposits totalling Â£17m.
The figure is Â£946.8m when investments by police authorities and Transport for London are added. Sutton Council in south London confirmed it had exposure totalling Â£5.5m, and Havering Council in east London said it had investments worth Â£12.5m.
Treasury Ministers Stephen Timms and Ian Pearson and Local Government Minister John Healy held talks with the Local Government Association, which represents councils in England and Wales. North Lincolnshire Council has Â£2m invested with Landsbanki and Â£3.5m in Heritable. North East Lincolnshire Council said it had Â£2.5m on deposit with Landsbanki.
In a joint statement afterwards they said: "Government and the LGA agreed that there is no evidence of recklessness by local authorities." Hertfordshire County Council has Â£17m invested, while Buckinghamshire has Â£5m - the same sum as Cornwall County Council.
They added: "We will judge what's appropriate on a case-by-case basis but, in previous situations, support has included helping local authorities restructure their financial priorities, providing additional expertise and capitalisation of expenditure." Despite the Conservatives warning that town halls could face a "massive financial shock" and be forced into council tax hikes or cuts in local services, the LGA insisted that all the councils involved had enough money to ensure that frontline services should not be affected.
James Purnell, the Minister for Work and Pensions, said the government's priority was to make sure that the services provided by local authorities were not affected by the collapse. BBC local government correspondent John Andrew said there was growing anger among councils, who say they followed Treasury advice by investing surplus money in a way that would deliver the highest return for taxpayers.
"We met with the Local Government Association and have been discussing this with councils, and we've agreed that we want to work together obviously to protect service levels - but this is a complicated situation. LARGEST CONFIRMED DEPOSITS Kent County Council, Â£50mNottingham City Council, Â£42m Transport for London, Â£40mNorfolk County Council, Â£32.5mDorset County Council, Hertfordshire County Council, Â£28mBarnet Council, Â£27mSomerset County Council, Â£25mHillingdon Council, Â£20mNeath Port Talbot Council, Â£20mWestminster City Council, Â£17mHertfordshire County Council, Â£17mBrent Council, Â£15m class="" href="/1/hi/uk/7660741.stm">Full list of councils affected class="" href="/1/hi/uk_politics/7660800.stm">Q&A: Council funds at risk class="" href="/1/hi/wales/7660300.stm">Welsh councils concerned class="" href="/1/hi/scotland/north_east/7661206.stm">Scottish impact class="" href="/1/hi/england/7660684.stm">Impact on North of England councils class="" href="ID=">Kent vow over Â£50m investment class="" href="/1/hi/england/somerset/7661123.stm">Worries in Somerset over deposits The LGA says there is no question of services being at risk, but it wants the same protection for councils as has been given to personal customers of Icesave and other failed Icelandic banks.
"We've agreed that we will work with them over the next few days, and that is the right way of doing it, making sure we get a proper answer." The Treasury said councils fall into a different category, but that the government was aware of the concerns and was looking at the issue.
A Treasury spokesman said any assistance for Scottish councils would come from Holyrood, as local authority matters are devolved. Mr Haarde was unable to say what protection his country could offer for the bank's customers in the UK, but said his ministers had made contact with their British counterparts in an effort to avoid legal action.
According to Britain-wide figures acquired by the BBC, Kent County Council has the largest deposit, worth Â£50m. He also said his government had been taken by surprise by the crisis in its banks and by Britain's decision to bring legal action over Icesave.
Nottingham City Council has invested Â£42m, while Transport for London has Â£40m deposited in one of the affected banks.
The Conservatives have warned that town halls could face a "massive financial shock" and be forced into council tax hikes or cuts in local services.
"They are not going to find it easy in the short term," shadow communities secretary Eric Pickles said.
He added: "We need to look at the number of authorities that will be facing a cash-flow problem - some have their payroll on this, for others it's in terms of long-term investment."
The Lib Dems said the money at stake was "essential" for delivering local services and urged ministers to "make clear" how such funding would be protected.
But councils say they have followed Treasury advice by investing surplus money to deliver the highest return for taxpayers.
The LGA insisted all those involved had enough money to ensure frontline services should not be affected.
But it wants the same protection for councils as has been given to personal customers of IceSave and other failed Icelandic banks.
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