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Frontline services will not be affected by Iceland investment, say council

PUBLISHED: 17:31 16 October 2008 | UPDATED: 15:31 07 September 2010

THE TAXPAYERS and day-to-day services will not be affected by £37million of its assets being invested in frozen Icelandic banks, the leader of Haringey Council has vowed. The town hall invested £15.2million in Landsbanki and £19.8million to Heritable Bank

THE TAXPAYERS and day-to-day services will not be affected by £37million of its assets being invested in frozen Icelandic banks, the leader of Haringey Council has vowed.

The town hall invested £15.2million in Landsbanki and £19.8million to Heritable Bank, a UK registered subsidiary of Landsbanki, on September 29 - the day before Landsbanki went into receivership and just two weeks before the Icelandic economy ground to a halt.

A £2million deposit which was paid to Glitnir Bank in December has also been frozen this week.

At a full council meeting on Monday, Cllr George Meehan said: "I would like to assure everyone that the day-to-day running of our essential frontline services is not affected.

"As an organisation with a turnover of more than £1billion, and sound finances overall, we are well placed to deal with these issues."

Cllr Meehan defended the council's precarious financial situation by arguing that it had used Sector, an external treasury management adviser, as well as independent bank ratings agencies advice to guide its investments - and as such it was not to blame.

He said: "As with all other investments which the council makes, all of the deposits with the three banks, Landsbanki, Glitnir and Heritable, at the time of making the deposit met the required thresholds provided by the independent credit rating agencies and the council's external treasury management advisers."

The council had invested its £1billion annual budget in "various institutions" to accrue interest, he said.

But Lib Dem leader Cllr Robert Gorrie said that the council's excuse that it was following advice from economic experts and the government would not wash.

He pointed out that the majority of the country's local authorities were not exposed to this crisis and Haringey's exposure per taxpayer was one of the highest in the country - at £400 per capita.

He said: "Repeated suggestions that losing £37million will not impact future spending plans are simply ludicrous.

"This loss is almost 10 per cent of the council's annual expenditure on services or more than 30 per cent of the council's own annual capital expenditure.

"Something will not get done as a result of this loss and the council needs to be honest with residents where and when that cut will fall.

"I find it inexcusable that the council deposited money in these banks just over two weeks ago when most knew that doubt was circling the Icelandic banks.

"Every pound needs to be accounted for and all residents' worries need to be put to rest."

The Local Government Association has called for a government inquiry, led by the Financial Services Authority, into how credit ratings agencies continued to give Icelandic banks high credit ratings right up until a matter of days before they went into administration or receivership.

And the Treasury has been in talks with the Icelandic government to establish how UK local authorities can retrieve their money.

The government also froze the UK assets of Landsbanki on Thursday to ensure that UK wholesale are treated fairly.

The amount of public sector cash from the UK in Icelandic banks totals nearly £1bn, including at least £800m from councils, £40m from Transport for London, £30m from the Metropolitan Police and £2m from NHS foundation trusts.

Landsbanki, Glitnir and Kaupthing collapsed last week under the weight of their debt, leaving the Icelandic economy on the brink of bankruptcy.

Prime Minister Gordon Brown has pledged to do "everything in our power to get this money returned".

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