Barnet faces £30m loss in Icelandic bank collapse (From This Is Local London)

Barnet faces £30m loss in Icelandic bank collapse

11:30am Thursday 9th October 2008

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Nearly £30 million worth of investments could be lost by Barnet Council following the collapse of Icelandic banks.

The council confirmed this morning that it is set to lose £27.4 million from fixed-term investments in the Glitnir and Landsbanki banks if the Icelandic and British governments fail to agree a bailout plan.

More than 20 councils across the country had a total of £200 million invested in the banks, according to London Councils.

Today Barnet Council leader Mike Freer joined the Local Government Association (LGA) and London Councils in calls for the Chancellor to treat councils in the same way as individual savers, who have been given a Government guarantee that they will be protected against financial loss.

Mr Darling yesterday told MPs that local authorities could not expect to receive the same treatment as individuals because they are “a more informed investor”.

Council leader Mike Freer said: “No council could have reasonably foreseen the collapse of Iceland's banks in what once were safe deposits.

"Councils have been actively encouraged, and indeed praised, by Whitehall to undertake investments of this kind.

"The Government must take immediate action to identify the scale of the problem and provide certainty for both councils and local taxpayers."

A Barnet spokesman added that there would be "no immediate impact" on council services.

He said: “Each of these investments was entered into through brokers after consulting the council's credit criteria 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 services 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.”

But Susie Squire, campaign manager at The TaxPayers’ Alliance, criticised Barnet for being irresponsible with residents’ money.

She said: “The taxpayers of Barnet will be shocked to find out that their hard-earned money has been risked in this way.

“If Barnet Council had enough money to stash millions in savings accounts, they should have been making tax cuts.

“At a time when everyone is tightening their belts, relieving the financial burden on ordinary families should have been the priority – this money could have made a big difference to people in Barnet.

“Barnet’s councillors have some very serious questions to answer about this financial mess.”

Local councils are under a duty to seek proper returns on savings and investments, and until the current crisis the Icelandic banks had very high financial security ratings.

Other councils that are reputedly cautious, including Kent and Westminster, have found themselves with similar financial exposure.

Responding to Ms Squire's criticisms, Mr Freer said: “The TaxPayers' Alliance has little grasp of reality when it comes to the complex nature of local authority finances, and their knee jerk reactionary comments are unhelpful and misleading.

"The council has not ‘stashed’ millions of pounds away. We carefully and prudently profile what will be spent on capital projects and what is not immediately needed is invested to ensure that taxpayers of the borough receive the best value.

"By following such practice, the council has generated additional income that has reduced the burden on the taxpayers of the borough.”

The LGA, which represents more than 400 councils in England and Wales, echoed Barnet's assurances that the banks’ collapse would not impact local services.

Councillor Margaret Eaton, chairman of the LGA, said: "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."

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