Team bids to unfreeze Iceland money

Ministers have set up an emergency team of finance experts to help councils hit by the Icelandic banking crisis as it emerged that the number of local authorities involved had grown to 116 with £858m of public money tied up.

Ministers have set up an emergency team of finance experts to help councils hit by the Icelandic banking crisis as it emerged that the number of local authorities involved had grown to 116 with £858m of public money tied up.

The figure was revealed by the Local Government Association (LGA) as it called for a government inquiry into how credit ratings agencies continued to give Icelandic banks high ratings days before they collapsed.

In Norfolk, three authorities, the county council, Breckland Council, and Yarmouth Borough Council have nearly £50m tied up in the Atlantic island's stricken banks.

The LGA, which represents councils in England and Wales, said the banks and their UK subsidiaries continued to receive high ratings until September 30.


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Margaret Eaton, chairman of the LGA, said talks with administrators had been encouraging and it looked as if the amount in assets held by banks was of the same order as the liabilities.

“This isn't the time for a blame game,” she said. “This is an unprecedented situation, the extent of which could not have been foreseen.

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“Our analysis dispels the myth that many councils were investing recklessly after credit warnings were issued. The evidence shows that, overwhelmingly, town halls have acted prudently and within strict guidelines to get the best rates of interest on savings while investing

in institutions deemed to be

strong.”

But she said that councils which invested in Iceland after September 30 should hold an internal inquiry to find out why.

Daniel Cox, leader of Norfolk County Council, said: “This appears to be positive news on the face of it. Clearly, there is some way to go yet before the picture in Iceland becomes totally clear, but this seems encouraging, at least as far as one of the banks is concerned.

“We are following developments closely and are grateful to several of our MPs who have already written to us saying they support our call for the government to give the same level of support to local taxpayers as has been given to private individuals and privately-owned banks.”

Local government minister John Healey, who will chair a meeting with the Treasury and the LGA today, said the financial experts would be on hand to identify

the areas where they were needed most.

“I want to send a strong message that government is prepared to take swift and decisive action. I hope this reassures the public but also those who provide those local services on which we depend,” he said.

Breckland Council launched a review yesterday of its entire £70m investment portfolio, but insisted it could still pay its way.

Breckland Council has £12m tied up in six term accounts in three Icelandic banks. One of the funds was due to mature in three weeks and the rest within the next 12 months.

The authority will now review its treasury management policy and has begun an impact assessment over potential loss of income after learning about the failure of all Icelandic banks last week.

The rest of its investments are either in property (41pc or £29m) or UK and European banks (25pc or £17m).

Rob Barlowe, the council's assistant director of governance, told the Tory-led cabinet that over the last five years the invested cash had generated £10.8m in interest. He said the review had shown that all their non-Icelandic savings were in A-rated banks and deemed safe and were expected to make £1.8m for reinvestment into council coffers and to help hold down council tax rates.

William Nunn, leader of the council, said: “I want to reassure the public, staff and contractors that in the short term there will be no impact on council services or the council's capacity to meet its financial commitments.

“The outcome of the government negotiations and the financial impact on the council in the medium to longer term is presently unclear.

“Although the situation is fluid, in the meantime, I reiterate that it is business as usual.”

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