Local authorities have lost hundreds of millions of pounds
News about the failure of Icelandic banks that have recently collapsed has been dominating the headlines, and the government has confirmed that local authorities have invested a total of over £840 million with these Icelandic banks. This has caused outrage amongst consumers, but government officials have said that councils were not being reckless with the cash by investing it in these Icelandic banks.
Officials believe that the deposits of over one hundred local authorities could be at risk as a result of the collapse of these banks. For consumers that have put their own hard earned cash into these Icelandic banks the government has promised a 100% guarantee so that they will not lose their cash even though the Icelandic government has apparently failed to fulfil its obligations over compensation. However, there is no confirmation with regards to what will happen with the money of local authorise and even charities, many of which had each invested millions in these banks.
The reason why local authorise had invested money in Icelandic banks was because of the high rate of return on savings that was being offered by Icelandic financial institutions such as Icesave and Kaupthing Edge. It was also to minimise risk by spreading their investments across different financial institutions rather than placing all of their eggs in one basket given the current financial turmoil in the banking sector. Ministers have now said that they will deal with the issues on a case by case basis, but so far there has been no guarantee on these deposits.
The total level of deposits for local authorities comes to £842.5 million in all, but with deposits from police authorities and Transport for London added the figure comes to a whopping £946.8 million. Talks have already been held between ministers and the Local Government Association. Following the talks a statement was released reading: “Government and the LGA agreed that there is no evidence of recklessness by local authorities.”
The statement went on to read: “We will judge what’s appropriate on a case-by-case basis but, in previous situations, support has included helping local authorities restructure their financial priorities, providing additional expertise and capitalisation of expenditure.”
The Minister for Work and Pensions said that it was vital that in the meantime that council services were not affected by the huge losses. He said: “We met with the Local Government Association and have been discussing this with councils, and we’ve agreed that we want to work together obviously to protect service levels – but this is a complicated situation. We’ve agreed that we will work with them over the next few days, and that is the right way of doing it, making sure we get a proper answer.”
However, Conservative MPs have said that the financial losses are going to come as a huge shock for councils, with one stating: “They are not going to find it easy in the short term. We need to look at the number of authorities that will be facing a cash-flow problem – some have their payroll on this, for others it’s in terms of long-term investment.”
Tags: basis, LGA, recklessness, advice, bank losses, guarantee
