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Councils will get Iceland cash refunds

PUBLISHED: 10:09 12 June 2009 | UPDATED: 14:10 03 July 2010

THE three Norfolk councils that collectively saw more than £45m of taxpayers' cash frozen in the stricken Icelandic banks look likely to recover most of the money.

THE three Norfolk councils that collectively saw more than £45m of taxpayers' cash frozen in the stricken Icelandic banks look likely to recover most of the money.

Hopes rose last night as an influential group of MPs criticised local authorities and their advisers for the investment strategies that saw so much money poured into the shaky Icelandic system.

Norfolk County, Breckland and Yarmouth councils faced losing their money after the banks folded at the height of the global banking crisis last autumn. But they believe there is now light at the end of the tunnel, with the first payouts from Iceland expected in the next few weeks.

Breckland Council, which had about £12m tied up in three banks, is expecting to recover 90pc of that money, with the first repayment due to arrive next month.

Seb Duncan, Yarmouth council's head of financial services, said it was expecting to get back 70-80pc of the £2m it invested in Iceland, with the first payment arriving in August.

And Norfolk County Council - which had £32.5m tied up in Iceland - is also expecting to receive most of its cash back. If it managed to get back 90pc, that would see more than £29m returned to the council, though that figure would fall to about £23m if it got back only 70pc.

Paul Brittain, head of finance at County Hall, said: “We are reviewing the position concerning our £32.5m deposits with three Icelandic banks in the light of the latest information we have received from the banks' administrators.

“I will be reporting to members of the council at the end of June, and my report will include an assessment of the amount of money we currently expect to recover from the Icelandic banks once each one has been through the administration process.”

The councils mounted a strong defence of their investment procedures after local authorities as a whole came under fire from the cross-party communities and local government select committee of MPs which yesterday criticised “complacent” councils.

The MPs said there were plenty of warning signs about the shaky state of the deposit-takers, which were holding nearly £1bn belonging to dozens of UK local authorities when they failed.

Complacency, lack of expertise and inaction all contributed to putting taxpayers' money at risk, according to the report.

“There is evidence of a failure to follow appropriate procedures and conduct adequate scrutiny of the treasury management function,” it said.

The MPs were also scathing about the outside experts whose advice to councils saw them invest so much money in Iceland.

In the report, they said: “It was the role of external service providers which caused the committee most concern.

“We found a discrepancy between what some of these advisers said they offer and what they provide in practice. Unsurprisingly, there is some confusion among local authorities about what they can and should expect from these advisers.”

The Norfolk councils said it was unfair to tarnish all local authorities with the same brush, and pointed out that an Audit Commission report in March had cleared them of any mismanagement.

Mr Brittain said: “I would refer back to the Commission's findings that concluded the majority of councils - including us - acted properly and were alert to the risks.

“We were extremely diligent and certainly heeded all the advice we received, and had already stopped investing in Iceland by the time the warning signs were first reported in April 2008.

“I would repeat that all our investments have always been made in accordance with treasury guidance, and were only ever made in banks and institutions with the highest credit ratings. At the time the investments were made, all three banks met all of our investment criteria.”

Trevor Holden, chief executive of Breckland Council, said: “I welcome the recommendations of the select committee report which mirrors much of Breckland Council's treasury management policy.

“We have reviewed this policy in the light of the collapse of the Icelandic banks and the unprecedented global economic climate and I am completely satisfied that it is sound.”

“Our response to the Icelandic banking situation was heralded by the Local Government Association as exemplary and I am pleased to report we expect the return of the majority of the funds to start next month.”

Richard Kemp, of the Local Government Association, said: “This report clearly shows that councils were largely let down by the organisations that they were relying on to provide up-to-date and accurate advice.”

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