The big local government story remains the vast sums deposited by Councils in Icelandic banks. Is it credible simply to blame the Government because Councils were following their guidelines? In 2004 John Prescott told Councils they could invest with foreign banks if they had branches in the UK. There was vague advice about "to seek the highest rate of return consistent with proper levels of security and liquidity." But this wasn’t an instruction. It was a guideline. Since when did anyone think advice from John Prescott was worth following? If Councils are less craven about following Government guidelines in future then some good will have come out of this mess.
Tory MEP Dan Hannan says:
"Some of my local authorities have lost tens of millions of pounds. But
my blood boils when I read the reports offered by their jobsworth
accountants telling councillors that all would be well, because they ‘adhered to the treasury management practices set out in the CIFPA
Code’. No risk, then, No need to apply common sense."
The Daily Telegraph reports this morning:
"Winchester City Council, which is Conservative-run, sank funds into Heritable,
a subsidiary of the troubled Landsbanki bank, only hours after the collapse
of Lehman Brothers – the event which triggered the stock market melt-down
which led directly to the collapse of the Icelandic financial system, three
Other local authorities are also thought to have continued investing in
Iceland in recent weeks, despite warnings from leading financial and
Winchester’s actions emerged after Lord Oakeshott, the Liberal Democrat
Treasury spokesman, clashed with Paul Coen, chief executive of the Local
Government Association, accusing councils of being reckless with taxpayers’
During heated exchanges on Radio 4’s Today Programme, Mr Coen insisted that
councils had abided by Government guidance.
But Lord Oakeshott said: ‘Councils who have put money in Iceland banks
last week, like Winchester who put £1m in a subsidiary of Landsbanki only a
month ago, they must have been blind and deaf.’
But thus far the Councils involved have robustly defended their actions. For example Cllr Paul Carter, leader of Kent, told The Politics Show at the weekend:
"Six months ago, the credit ratings of
those banks were good and I think if you looked at the credit ratings
of the other 31 banks that we’re investing our money in, credit ratings
were good. Every quarter, our officers meet with our consultants to
look at the credit ratings supplied by the three biggest financial
advisers in that market to determine our investment policy over a year."