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Council millions at risk in Icelandic banks
LOCAL authorities came under fire today after it emerged that millions of pounds of taxpayers' money invested in Icelandic banks was at risk.
Critics branded the investments an "absolute disgrace" and said those responsible should consider their positions.
One authority - Kent County Council - has 50 million deposited in Icelandic banks while more than 20 others are thought to have exposure running into millions of pounds.
Barnet Council in north London is thought to have in the region of 27 million deposited and Westminster Council said it had 17 million with Icelandic institutions.
Transport for London said it has a 40 million deposit with Kaupthing Singer & Friedlander, which has been placed into administration.
Mark Wallace, campaign director at the TaxPayers' Alliance, said: "People will be shocked that the councils had this money stashed away in the first place.
"Every year we hear that councils don't have enough money and need to raise taxes but it seems they have had sufficient excess tax to salt tens of millions of pounds away.
"The fact that they have invested this money and seem to have lost it is even more shocking and is sadly yet another reminder of the poor financial management in local councils.
"In short, they should not have stashed this money in the first place and they simply weren't equipped to try to be clever in the markets with it."
He continued: "It's an absolute disgrace. If the councils can't get their money back, the people who took these excesses should seriously consider their positions as councillors."
Edward Welsh, of the Local Government Association (LGA), insisted councils acted along "prudent lines" by spreading their money across several financial institutions at home and abroad. But he admitted the money was now "at risk".
Mr Welsh told BBC Breakfast: "Councils are large employers, they have large wage bills to pay off, they collect large amounts of money in council tax.
"The reason why this money has been put in these banks is to try to reduce risk by putting their money in as many banks as possible .
"In a world where the global banking system is under such enormous pressure, it's perhaps not surprising that a council has been caught out in this way."
He said councils follow government guidance and use independent financial advice but the financial "world is changing as we speak".
He said of the money: "We don't know it's lost, we know it's at risk. That's why we are speaking to the Treasury, that's why we want to find out what we can do to try and get that money back."
The LGA has urged Government to guarantee them against any losses.
Chancellor Alistair Darling announced yesterday he will protect the savings of private investors in Icelandic banks.
He said local authorities were "more of an informed investor".
"But this situation is evolving, we are trying to sort the matter out with the Icelandic government," he said
Prime Minister Gordon Brown promised legal action against the Icelandic authorities to recover the funds.
Conservatives said town halls faced a "massive financial shock", threatening council tax hikes or cuts in local services.
The LGA insisted that frontline services should not be affected by any losses.
London public authorities are thought to face exposure of around 200 million, according the umbrella organisation London Councils.
At least eight borough councils in the capital are thought to be affected - Westminster (17 million), Havering (12.5 million), Sutton (5.5 million), Barnet (27 million), Brent (15 million), Hillingdon, Haringey and Bromley.
London Councils' chairman Merrick Cockell said: "It is essential that the Chancellor provides local authorities with a guarantee that their investments will be protected alongside personal investments.
"While nobody could have anticipated the collapse of what were once safe deposits, the Government must now act swiftly to safeguard these assets and protect London's council taxpayers."
Nick Chard, cabinet member for finance at Kent County Council, said the issue would have "no impact" on the council's services - but warned smaller authorities might not be able to avoid cuts.
He said: "In Kent there will be no impact on council services but the concern I have is for some of the smaller authorities. It may well have some impact there."
The council had "followed the protocols absolutely to the letter" in deciding, on professional advice, to invest in the banks, which were highly-rated until just a week ago, he said.
North East Lincolnshire Council has 2.5 million on deposit with Landsbanki out of a total of 90 million of investments, a spokeswoman said.
Alan Madin, executive director of corporate services, said: "The council and our treasury advisers are awaiting further information on the support for Landsbanki from the Icelandic government who are aware of the reputational risks should Iceland's second largest bank default on foreign loans.
"It is clear that deposits due in the next few weeks are unlikely to be repaid on the due date but it is too soon to speculate on the size of any ultimate loss of capital.
"A delay in repayment is manageable without impact on council services and the council carries a level of self insurances that would help cushion a loss should any occur."
Gateshead Council said it had money invested in a UK subsidiary of Landsbanki, but was unable to give an exact figure.
Derek Coates, strategic director of finance, said: "We are therefore seeking clarification from the administrators and our financial advisers about the situation."
LGA deputy chief executive John Ransford said: "This is a very fast-moving situation. It is changing all the time, and we need to talk to Government to make sure we act sensibly in the interests of local taxpayers and making sure services are preserved.
"This is public money - it's your money and my money - we need to treat this in exactly the same way as individual investors in these banks."
Shadow local government secretary Eric Pickles said: "Councils have been actively encouraged, and indeed praised, by Whitehall to undertake these kinds of investment.
"Local government finances are now at risk and people will be concerned about their local services and council tax bills. The Government needs to stop dithering and clear up this uncertainty."
Mr Pickles told BBC Radio 4's Today programme that the sums involved could exceed 1 billion and some district councils had large proportions of their cash tied up in the banks.
Liberal Democrat local government spokeswoman Julia Goldsworthy said: "The easiest way for the Government to reassure local taxpayers is to make clear how local authority funds will be protected.
"Ultimately this is council taxpayers' money at risk and these are funds which are essential for the delivery of local services."
North Lincolnshire Council said that it had 2 million invested with Landsbanki and and a further 3.5 million with its subsidiary, Heritable.
A spokeswoman said: "We invested the money in line with the council's approved treasury policy and at a time when markets were much more stable.
"At this point in time we don't know whether the money is totally lost, partly lost or secure and are awaiting confirmation. But it does not affect the council's ability to pay staff and creditors."
Hillingdon Council in west London said a total of 20 million was invested with Icelandic banks - 5 million with Landsbanki and 15 million with Heritable.
Westminster Council said its 17 million deposited in Icelandic institutions was a small percentage of total investment.
The council said it had 300 million-worth of investment at home and abroad with reserves of 70 million.
The council's budget requirement is 224 million, with 48 million of that funded via council tax.
A spokesman said: "It's very much business as usual at Westminster.
"Westminster Council has been awarded the highest accolades from the Audit Commission over recent years with regard to the standards of its front-line services, financial management and the value for money we offer our residents."
Cornwall County Council said the 5 million invested with the Icelandic bank Landsbanki was from total investments of 360 million.
Dorset County Council has deposits in the form of temporary loans to Landsbanki and Heritable totalling 28.1 million.
The council made the fixed-term deposits months ago when the two banks had a high credit rating and repayment was due at various times over the next eight months.
The council said it would not cause "significant cash flow problems" in the short term but there would be budget implications if the cash is not recovered.
County council leader Angus Campbell said: "The council has followed Government guidelines and deposited its cash balances with a wide range of banks to ensure that any risk is minimised.
"We will continue to press the Government to protect our investment and take every possible step to recover this money."
The county council manages the cash balances for itself and the Dorset County Pension Fund, which in total comprise 225 million.
Perth and Kinross Council said it has 1 million invested with Glitnir bank.
A spokeswoman said: "We have a short-term investment with Glitnir. We will continue to monitor the situation closely."
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Wednesday 23 May 2012
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