Taxpayers face high cost of banking crisis
PUBLISHED: 14:06 09 October 2008 | UPDATED: 15:28 07 September 2010
MILLIONS of pounds of taxpayers money from Barnet, Haringey and Westminster is in danger of being lost in the Icelandic bank crisis. The three councils have all made huge investments in Icelandic banks Landsbanki its subsidiary Heritable, and another ba
MILLIONS of pounds of taxpayers' money from Barnet, Haringey and Westminster is in danger of being lost in the Icelandic bank crisis.
The three councils have all made huge investments in Icelandic banks Landsbanki its subsidiary Heritable, and another bank Glitner, and have been frozen out of withdrawing their money amid the banking collapse.
There are currently no assurances from Britain or Iceland that the money will be repaid and fears are growing that council tax hikes and cuts in services in those boroughs will have to take place.
Haringey council had £37million in the banks.
Leader of the Council Cllr George Meehan said: "Like a number of other councils, we do have investments with Icelandic banks which total approximately £37million.
"We have sufficient resources to manage these exceptional circumstances and frontline services will not be affected because we have sound and prudent financial management in place to protect against such risks.
"Given the sums of public money involved I expect government to protect these investments.
"We follow tight government guidelines and have a good track record for financial management, confirmed by our regular independent auditors' reports. This issue is the result of the problems in the world economy."
Barnet Council has more than £27million invested in the banks and a spokesman said it was unsure what impact this could have in the long term.
He said: "Barnet council entered into a number of fixed term investments with financial institutions based in Iceland a considerable time before the current credit crisis.
"As these investments are fixed term, the council has been unable to withdraw them over the last few days.
"Each investment was entered into through brokers after consulting the council's credit criteria, as outlined in our annual treasury strategy document, and after consultation with both our treasury consultants.
"All of the institutions were rated by all the credit rating agencies at a level that was well within the credit criteria that the council uses for investments purposes.
"Whilst it is too early to determine how the current crisis will affect the council's finances in the longer term, our current financial position is such that there will be no immediate impact on council services, or the council's ability to pay bills, pensions or salaries."
Pension funds in all three are not part of the investments in danger and the councils will join others across the country in a campaign for a Government bailout to replace the funds lost.
However the Chancellor has refused to make the move despite assuring British individuals with savings invested in Iceland that they would be covered.
Westminster Council Leader Colin Barrow said: "We currently hold £70m in reserves and so are able to reassure staff and residents that this problem, serious as it is, poses no threat to council jobs or services.
"However, we do not currently have any indication that either the Icelandic or UK government will step in to underwrite these deposits."
Some commentators are already urging the Government not to help the councils which would mean subsidising them with taxpayers money from elsewhere.
Camden Council has no money invested in Iceland.