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Search forCornwall faces £5m bank loss
Thursday, October 09, 2008, 10:00
There were also warnings that other councils could be at risk from the collapse of overseas financial institutions, writes WMN London Editor Matt Chorley.
MPs said there was an "urgent need" for the Government to make clear if the investments would be guaranteed in the same way as individual deposits. Otherwise taxpayers could be left to pick up the bill.
Cornwall County Council officials confirmed the money is invested with the doomed Icelandic bank Landsbanki.
The money is part of some £360 million which the authority has in investments spread across a large number of institutions "with high credit risks".
Brian Higman, the council's executive member for corporate support, said before the investment was made in June this year Landsbanki had a high credit rating.
"This is a time of unprecedented market turmoil and we don't yet know the position with regard to our investment," he added.
"This situation illustrates the prudence of the council's policy of spreading potential risk among a large number of investment opportunities."
South West minister Ben Bradshaw told the WMN that councils and businesses that had invested overseas "made those decisions with their eyes open" but he urged them to make representations to the Government. Dozens of authorities are thought to have deposits totalling hundreds of millions of pounds in stricken Icelandic-owned banks such as Icesave and Landsbanki.
Local Government Association (LGA) chairman Margaret Eaton said Cornwall County Council and others had been entirely responsible in selecting Landsbanki as a "reputable bank with a solid credit rating".
"Councils' experience of ensuring stability in a financial crisis will mean that they will keep vital frontline services running through thick and thin and this situation is no different," she added.
Chancellor Alistair Darling, tackled on the issue while making his emergency statement to the Commons yesterday, insisted councils were not in the same situation as individual savers.
"I do know the position about local authorities – I think they're in a slightly different position in that they are more of an informed investor," he told MPs. "But this situation is evolving, we are trying to sort the matter out with the Icelandic government."
Mr Darling earlier announced that no UK saver would lose money as a result of the closure of Internet bank Icesave if, as expected, its parent company Landsbanki is declared in default.
The Treasury has also arranged for more than £3 billion of UK savers' money that is held with Icelandic banks to be transferred to ING Direct UK, a subsidiary of Dutch savings bank ING Direct.
The LGA has so far identified more than 20 councils with deposits in the Icelandic-owned banks, ranging from millions to low tens of millions each.
Devon County Council confirmed last night that it does not have any investments with the troubled firms, as did district councils in Penwith, Carrick and North Cornwall.
Liberal Democrat local government spokesman Julia Goldsworthy said Mr Darling should spell out in detail where the affected councils stand.
The Falmouth and Camborne MP said: "There is an urgent need for clarification as to whether council investments will be protected in a similar way to individual deposits.
"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 tax payers' money at risk and these are funds which are essential for the delivery of local services."
Shadow local government secretary Eric Pickles said councils had been encouraged by the Government to seek the best rates of return and the Chancellor's failure to give a clear ruling was putting authorities' finances at risk.
"No council could have reasonably foreseen the collapse in Iceland's banks in what once were safe deposits," he said.
"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."
Prime Minister Gordon Brown's spokesman said: "Of course we understand the issues in relation to local authorities and the Government stands ready to sit down and discuss with local authorities any particular issues that may arise."
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This situation is evolving, we are trying to sort the matter out with the Icelandic government
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