Town hall and charity leaders will meet Treasury ministers this week to thrash out emergency measures to stave off council tax rises, missed wage payments and service cuts as a result of the Icelandic banks crisis.

Council chiefs have also arranged a meeting with the Icelandic Ambassador in London to try to secure assurances that more than £800 million invested in the collapsed banks by 108 town halls will be repaid.

The Local Government Association played down reports that hundreds of thousands of workers may not be paid this month because the money is locked in the banks. “We are not aware of any councils that have immediate cashflow problems in terms of services or paying staff,” an LGA spokesman said, although he admitted that some smaller districts might need extra financial help in the short term.

Council chiefs are also in the firing line over accusations that many continued to invest in Icelandic banks even though financial advisers had issued warnings to some authorities more than nine months ago that this could be risky.

Paul Carter, leader of Kent County Council, which has £50 million invested in Icelandic banks, said that the council had reviewed the investments with financial advisers three months ago and there was no suggestion that these were at high risk.

Much of the money was in fixed-term deposits for six or 12 months so could not be withdrawn without penalties, he said.

“Our advisers advised us that Iceland was not exposed to the toxic debt in North America from sub-prime property lending.”

Treasury officials claimed last night that “significant progress” in respect of personal depositors had been made at Friday’s meeting with Icelandic authorities in Reykjavik. But they were less optimistic about wholesale deposits from the public and private sector that are not covered by government guarantees. A statement made after the delegates returned said that there was agreement in principle for “an accelerated payout” of the £4.5 billion of personal investments.

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