Icesave, the failed icelandic internet bank

Govt to help Iceland deposit councils

Govt to help Iceland deposit councils

The government has pledged to offer any council struggling to provide servcies due to the loss of its Iceland funds “appropriate assistance”.

Most of the 100 councils whose Iceland funds have been frozen will still be able to provide services, but the government says a few may have a problem. They will be assisted “on a case by case basis”.

The Liberal Democrats warned there could still be worse to come.

“The next question is how far the problem will spread,” said local government spokesperson Julia Goldsworthy.

“PFI schemes for new schools and hospitals could be under threat.”

The offer follows a day in which council after council stated it still had funds in Icelandic banks. Organisations are not covered by yesterday’s UK government guarantee.

The Conservatives said they struggled to get a straight answer on the exposure and protection of local authority’s foreign deposits.

“The government is continuing to dither in face of a worsening problem. Hour by hour, it is clear that more and more councils have been exposed to the meltdown in Iceland’s banks,” said Eric Pickles, shadow local government secretary.

“Councils have literally billions on deposit. If they now all panic, pull their money out in the safest option like Government bonds, there will be adverse consequences.”

The Liberal Democrats have also called for clarity on how local council funds will be protected.

Treasury spokesman said: “As the chancellor said yesterday, local authorities are more of an informed investor in this case.

“However, the government is working with the Icelandic authorities to ensure that UK creditors, including UK local authorities who have invested in Icelandic banks, are treated fairly.”

Other bodies with money frozen in Icelandic banks include the Metropolitan police and Transport for London, which invested £40 million in failed Icelandic bank Kaupthing Singer & Friedlander.

Relations between the UK and Iceland have fallen to new lows since the crisis, with chancellor Alistair Darling saying: “The Icelandic government, believe it or not, have told me yesterday they have no intention of honouring their obligations here”.

The government yesterday put £4.6 billion of taxpayer money on the line to guarantee British retail deposits in failed Icelandic bank Landsbanki.