Articles | Councils in Iceland cash crisis

Councils in Iceland cash crisis

Published: Wednesday, 8 October 2008, 10:21PM

Town hall bosses have urged the Government to guarantee huge sums invested in Icelandic-owned banks.

Dozens of local authorities are thought to have deposits totalling hundreds of millions of pounds of taxpayers' money in stricken institutions like Icesave.

They are calling on Chancellor Alistair Darling to extend the same protection he has offered private investors to them.

The Government today took steps to protect the nearly 500,000 UK consumers who have money saved with Icelandic banks.

Mr Darling earlier promised none of the 500,000 UK consumers who have money saved with internet bank Icesave will lose the cash if its parent company Landsbanki is declared in default.

The Treasury has arranged for more than £3 billion of money held with Icelandic banks to be transferred to savings bank ING Direct UK.

Local Government Association (LGA) chairman Margaret Eaton wrote to Mr Darling today seeking an assurance the assets would be protected.

She said: "In the short term, these councils are confident that they will have sufficient funds to tide them over for a considerable period of time."

The LGA has so far identified more than 20 councils with deposits in Icelandic banks ranging from millions to low tens of millions each.

Westminster City Council revealed it had deposits totalling £17 million in two Icelandic banks while Kent County Council confirmed it has £50 million deposited.

Other exposed councils include Havering in east London (£12.5 million), Sutton in south London (£5.5 million) and Ipswich Borough Council.

Shadow local government secretary Eric Pickles said: "No council could have reasonably foreseen the collapse in Iceland's banks in what once were safe deposits.

"Councils have been actively encouraged and indeed praised by Whitehall to undertake these kinds of investment. The Government must take immediate action to identify the scale of the problem and provide certainty to both councils and local taxpayers."