Services warning as councils feel chill from Icelandic crisis

15 October 2008

Local government has raised the prospect of frontline services being affected in the medium to long term, if councils’ frozen deposits in Icelandic banks are not returned.

The Local Government Association has emphasised that, in the short term, councils which had invested a proportion of their reserves in the collapsed banks would have ‘sufficient funds to tide them over for a considerable period of time’.

But, many of the 40-plus local authorities across the UK which were thought to have around £1bn invested in the banks said any potential losses were likely to affect future budgets.

Norfolk County Council, which had £32.5M invested in Icelandic banks, said that, should the UK or Icelandic governments not give councils compensation, ‘this could, in the medium term, lead to service reductions in local government and/or rises in local taxation’.

Barnet council, which had £27.4M invested, said it was ‘too early to determine how this crisis will affect the council’s finances in the long term’. Council leader, Cllr Mike Freer, urged the chancellor, Alistair Darling, ‘to provide certainty’.

The majority of the local authorities’ investments were due to mature in 2008/09 or 2009/10, the councils having invested grants received from the Government in the short term, taking into account when the money would need to be accessed.

Darling told the Commons this week that the Treasury was ‘working with the Icelandic authorities to facilitate claims by local authorities on their deposits held at these banks’. The Government agreed in a joint statement with the LGA that it would offer ‘appropriate assistance’ for those authorities facing severe, short-term difficulties.

Some councils’ investments were due to mature soon, Plymouth City Council, for instance, was expecting to access £9M this month.

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