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No tax hikes pledge

PUBLISHED: 17:27 16 October 2008 | UPDATED: 09:16 11 May 2010

A LEADING Tory councillor has pledged not to cut services or increase council tax in the wake of the collapse of an Icelandic bank where £2m of the borough council's money was invested.

A LEADING Tory councillor has pledged not to cut services or increase council tax in the wake of the collapse of an Icelandic bank where £2m of the borough council's money was invested.

Barry Stone, the council's deputy leader, said it was still unclear whether the council would be able to recoup all or part of the money invested in Heritable Bank - part of Iceland's second biggest bank Landsbanki.

But the council is working with the Local Government Association (LGA), which represents local authorities nationally and is trying to recoup the £858m invested in Icelandic banks by councils across the UK.

Mr Stone said: “As far as I am aware there will be no affect on services in the short term and in the long term we will make the necessary arrangements to make sure it does not affect council tax increases.”

However, he criticised industry regulator the Financial Services Authority (FSA) which he said had encouraged the council to continue investing in the Icelandic bank even though it had a “debatable'” credit rating.

He said: “Local authorities were encouraged by the FSA into still investing in with these banks even though their credit ratings were debatable. They must have had some indication that these banks were having difficulties and that there were problems.”

The money was invested on July 15 and the council was due to get its money back this week with nearly £30,000 interest.

But the bank collapsed on October 7 with the retail deposit business being transferred to Ing Direct, a wholly owned subsidiary of Ing Group.

The council also has a further £5m invested, split between three banks including Irish Nationwide, EBS Building Society and Derbyshire Building Society.

People in north Norfolk have been assured none of their district council's cash is in Icelandic banks, although concerns have been raised over what impact the recession will have on services.

Officers have begun switching the council's £24m worth of investments to even safer ground. But none of the money went to Iceland because the council did not meet the maximum credit rating required.

Instead, £325,000 was invested in Barclays and £4.5m in the European Investment Bank but funds are gradually being switched to the government's Debt Management Office, which is more secure but with an interest rate 1pc lower than most.

The council's deputy chief executive Sheila Oxtoby said she hoped this would only be a temporary measure, but if it continued it could have an impact on levels of services available to council tax payers.

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