Cash reprieve for councils

PUBLISHED: 09:02 27 November 2008 | UPDATED: 12:22 03 July 2010

HOUSEHOLDERS were last night given a 12-month reprieve from any swinging service cuts and tax rises needed to bail out councils caught up in the Icelandic banking crises.

HOUSEHOLDERS were last night given a 12-month reprieve from any swingeing service cuts and tax rises needed to bail out councils caught up in the Icelandic banking crises.

Local government minister John Healey yesterday revealed that councils with millions invested in Iceland's collapsed banks will not have to make provision in their budgets for 2009-10 for any possible loss on their investments.

In Norfolk three authorities - Norfolk County Council, Breckland and Yarmouth - have around £50m tied up in the collapsed banks.

Officials are due to learn from administrators early next month how much of the cash they can expect to recover.

Mr Healey, who also confirmed this year's 4.2pc funding increase for councils the second part of a three year settlement, said the move would give local authorities time to adjust their medium term financial plans and be clearer about recovering their money before making decisions which affect their budgets or council tax.

Daniel Cox, leader of Norfolk County Council, which has £32.5m tied up in Iceland, said the announcement was a step in the right direction.

“It give us, and very many other public bodies across the nation, more breathing space to deal with what is still an emerging situation and one which looks likely to remain unclear for some time to come,” he said.

“Although we are clearly going to lose out in the short term in terms of interest from the money currently frozen in Iceland, we have already being planning with that in mind and will continue to vigorously pursue a return of both the investments in full, and the interests accruing from them in the months ahead.”

William Nunn, leader of Breckland Council, said he had instructed officers to look at find measures to cope with the potential loss of £700,000 in interest payments, with the focus set to be on scaling back capital projects.

“It seems to be a book-keeping statement, so we have still got to be prudent because otherwise we are simply going to be deferring the loss of revenue for a further year and drawing down on our reserves.

Yarmouth council leader Barry Coleman said: “It's obviously a stay of execution, because the problem isn't going to go away, but it gives us more breathing space.”

Mr Healey said council tax rises should be substantially below 5pc and local authorities will also be expected to press on with annual 3pc efficiency savings and show how they are saving the money on their bills.

But with the economic downturn leading to falling income and rising pressure on services such as benefits, councils across the board are bracing themselves for a difficult budget setting round.

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