How much your council has frozen in Iceland

Alistair Darling refused last night to bow to demands by town halls, police authorities and charities to protect £1 billion of taxpayers’ money held in collapsed Icelandic banks.

After an emergency meeting between ministers and council chiefs the Chancellor agreed to give “appropriate” help in the severest cases. But he rejected their call to extend the guarantee from individual savers to public and commercial bodies who also risk losing their cash.

Even as the meeting took place The Times learnt that some town halls were considering withdrawing all their cash from private institutions and putting it into more secure Government bonds. If dozens of councils follow suit this could lead to a damaging run on the banks, local government experts cautioned. Westminster and Kensington and Chelsea, two top London councils, said that they were looking at this option.

Tony Travers, of the London School of Economics, said: “Local authorities hold tens of billions of pounds in pri- vate banks. If the Government refuses to give them any protection there they will take it out, causing a run on the banks. The council-tax payer will also lose out as town halls will get lower interest in government bonds.”

The Local Government Association disclosed that more than 108 councils had invested £800 million in Icelandic banks. A Times survey of 82 authorities showed that deposits varied from a few million pounds in smaller districts to £50 million from Kent County Council. Although many councils, such as Kent, have small amounts of their budget invested, smaller districts could have to raise council tax and cut services if they lose their money.

It also emerged yesterday that police authorities in England had invested £100 million, the Metropolitan Police Authority £30 million and Transport for London £40 million. Charitable organisations also appealed for protection as it became known that some of their members had also invested.

But the Government remained firm that it had no intention of bailing out the public or voluntary sector. John Healey, Local Government Minister, said he could not guarantee that people relying on their local council would not lose out. “We are not, and we won’t, guarantee the investments that councils have made,” he said.

“They are in a different position from individual savers. They are intelligent, they’re well-informed investors with access to all sorts of expert advice. We don’t accept that case.

“But what we do accept is that this may — may — cause severe problems for a small number of authorities, particularly the smaller authorities.”

At the meeting he agreed to give some councils greater flexibility to borrow extra cash to use for revenue purposes and to allow some town halls to defer passing on business rates to the Treasury for a limited period.

Council finance officers yesterday protested that they were only following advice that had been given by the Government after the collapse of BCCI in 1991 to spread their assets as widely as possible. In 2004 the Office of the Deputy Prime Minister, led by John Prescott, set out basic guidelines on how they should invest their money to get the best returns with advice on using creditworthy banks.

A spokesman for the Local Government Association said that councils had been told that they could invest in foreign banks provided they had branches in the UK. He also insisted that all councils would take advice from financial advisers such as Butler and Sector to compile a list of creditworthy banks. They would also check with leading credit agencies such as Fitch, Moodys and Standard and Poor that the banks had high ratings.

It emerged yesterday that some councils, including Westminster, one of the top authorities in the country, were still investing in Icelandic banks in September. They went ahead despite warnings by some politicians in July that the Icelandic banks were in a precarious position.

However, Brighton and Hove City Council said that it suspended transactions with one Icelandic bank — Kaupthing Singer & Friedlander — about a year ago amid concerns about the country’s banks expanding too rapidly.

The Treasury is still hoping that creditors to Landsbanki, Kaupthing Singer & Friedlander and Glitner Bank will eventually have their money returned.

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