Conservative Home has become aware of a rumour that a number of small Lincolnshire local authorities each have millions of pounds in the Icelandic institutions Heritage Bank and Landsbanki, just rescued by the Russian government.
These authorities all made the same choice because they mostly received the same investment advice from the same people – Icelandic banks had the highest interest rates. This suggests the problem could be far more widespread – or national. Should Dmitri Medvedev and Vladimir Putin feel inclined to refund fully all the deposits of British local authorities, councils will not face a new fiscal crisis. Otherwise, they may have to choose quickly between redundancies, cuts in services, increases in council tax or an appeal to the Treasury for a rescue – or some combination of the above.
If anyone has further information on this story as it develops, please contact Conservative Home.
4pm update: The Local Government Association has so far identified twenty councils with deposits with these banks. Exposure in some cases approaches £40 million. The total for local authorities across Britain is expected to be in the hundreds of millions.
Eric Pickles has stated:
"No council could have reasonably foreseen the collapse in Iceland’s banks in what once were safe deposits. Councils have been actively encouraged and indeed praised by Whitehall to undertake these kinds of investment.
"The Government must take immediate action to identify the scale of the problem and provide certainty to both councils and local taxpayers. Alistair Darling has so far failed to give a clear answer about local councils’ deposits held in Icelandic banks. As a result, local government finances are now at risk and people will be concerned about their local services and council tax bills. The Government needs to stop dithering and clear up this uncertainty."