Council hit by Icelandic freeze

Fay Schlesinger

October 09, 2008

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£6m of taxpayers' cash in a stricken Icelandic bank.

BOLTON council has confirmed that it invested £6m of taxpayers' cash in a stricken Icelandic bank.

The money deposited with the Landsbanki Group, the parent company of internet bank Icesave, is now at risk.

It represents at least seven per cent of all the council's deposits.

The £6m was invested on or before July 31, before the banking crisis, the council said. It sought to assure Bolton residents that frontline services will not be hit. But it admitted that it faces losing some, if not all, of the deposits.

A council spokeswoman said: "All councils deposit money in a wide range of banks and other financial institutions, after independent advice and within strict guidelines, to make sure that any risk is spread and there is no impact on the taxpayer.

Prudent

"Bolton council has always had a prudent loans policy that is formally updated each year but reviewed constantly throughout the year, based upon advice from leading brokers. This policy limits the numbers of banks that the council deals with to those given a high security rating, which included the Icelandic banks.

"At any point in time the council can have up to £80m in deposits. This £80m is made up of funds to back up council reserves such as insurance funds and general balances, plus monies received in advance of having to pay out creditors and salaries. Our policy has been to only deposit to those banks with a high security rating and to spread the deposits so we have no more than £6m with any individual bank and a lower limit with building societies."

The council is pressing the government to shore up loans from local authorities to Icelandic-owned banks. Discussions are continuing, a spokeswoman said.

Chancellor Alistair Darling has already said no UK saver will lose money as a result of the closure of Icesave if, as expected, the recently-nationalised Landsbanki is declared in default.

The Treasury has arranged for more than £3 billion of UK savers' money that is held with Icelandic banks to be transferred to ING Direct UK, a subsidiary of Dutch savings bank ING Direct.

Iceland's parliament adopted emergency laws to ward off national bankruptcy on Monday, allowing the government to take control of all banks and financial bodies, take over assets, merge institutions and force institutions to declare bankruptcy.

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Giles, Voice of City Fans (09/10/2008 at 13:22)

The council money sits in various banks like this for up to a year. I agree that it should be invested wisely but what on earth are these councils doing having spare cash whilst each year pleading for more?

dave pickup (09/10/2008 at 13:56)

Is it me or what? Why do councils invest money while sstill increasing council tax and reducing the quality of services? Rates money is there to be spent on it's citizens rather than doing nothing(except making risky interest)in a foreign bank. At the very least,the money should have been kept in Britain to make money for Britain instead of indulging in something equivalent to horse race betting!It's NOT the Councils' money,they haven't got any,it is the tax payers' money!

Rt Hon Dr Rev MC Spanner MP QC FCA FRICS JP OK (09/10/2008 at 14:04)

Giles,

Do you not find at the beginning of the month you have more than at the end? That's why Councils have deposits. Money doesn't come in an out at the same time. A grant may be received to be spent over three years. A number of people pay their Council Tax in April in one go.

Beaufort (09/10/2008 at 14:21)

It is my view that the councils should not have millions in the bank. I read that at the end of their fiscal year they can still have reserves of tens of millions. This isn't money that is due to be spent, it's playing the markets.

They won't get the Icelandic money back so guess what happens? The council tax payer will pay it.

Wew bail out the banks, now we bail out councils. Disgusting.

thaitanium (09/10/2008 at 14:24)

Councils investing unwisely?
What a surprise personally I wouldn't let these people do the weeks shopping unsupervised.
First lesson in economics, there are two types of money yours and someone elses money, your money your careful with, money belonging to someone else, who cares?
This sounds to me like a rerun of 1991 with the bank of BCCI when the councils "invested" our money with a bunch of crooks how many of these clowns got sacked, prosecuted or had sanctions on them, I would think the number could be counted on the fingers of one foot.
Again and again we hear of public money being wasted, lost by these people and who has to pay?
Step forward the council taxpayers to pick up the losses.
Still keep your heads down the people respsonsible for this and with any luck you will keep your jobs and final salary pension plan when this blows over.

dessie, manchester (09/10/2008 at 15:04)

they probably lose more in trips and falls claims due to dodgy pavinements!!

dogboy (09/10/2008 at 15:20)

thaitanium you are so right. The council should have kept the money in a sock under the bed rather than deposit it with an internationally known banking group.

What were they thinking of?

Polky (09/10/2008 at 15:29)

Maybe some of the councils should buy some shares in Barclays and RBOS while they are on the ground... If they get back up to £12 again, they'll be laughing.

Rachel, Bolton (09/10/2008 at 15:35)

I think that people should stop paying any council tax rises as its obvious they already have loads of money of yours (and now mine since I've moved) to play with, so they don't need any more for some time.

PW, Manchester (09/10/2008 at 15:41)

The money isn't surplus to needs. If you have long-term projects, you have to keep the money somewhere until payments are made.

If I've got £1,000 in my bank account at the moment, you can say I can go and pay for a holiday. But I have mortgage and direct debits etc to pay over the next month, so I can't really shout "yippee, I've got a grand!" It's spoken for. Same here, they have money because of the cash-flow situation, but it's earmarked.

Now the big question is what is going to happen if it is lost? Whose heads will roll? It's a difficult question as we've not seen this situation before. There are a lot of worried people at the moment. We don't have any parallels happened in my life-time.

Beaufort (09/10/2008 at 15:57)

pw, we don't need basic economics explaining, but seeing as though you are at it.

If I had £20k in the bank nad after all my direct debits, mortgage, holidays, food etc I still had a £20k left it is different isn't it? That would be called a reserve. This is what the councils have.

It isn't money in a checking accounbt for paying for the stage and video screen for the Olympics return or for the £3m spent on the advertsing for the congestion charge, it is surplus that they have been using to play around with.

I know soemone who is moving a few hundred grand about and the safest bet is in NSI Savings or premium bonds. He got his fingers burnt after 9/11 when markets crashed so rather than trying to make a quick buck he kept it in safer options.

This credit crunch has been going on for a year, fancy leaving it in that Icelandic Bank. Perhaps it was in one of those high interest acounts where yu can only daw out a certain percentage per annum - in other words it is not like your £1,000 waiting to be spent but is surplus cash.

Some heads need to roll but I dare say that they won't because we have too many apologists around don't we?

Jomov (09/10/2008 at 16:12)

The heads that should be rolling are probably in one of those full 5* hotels in the carabbean...

PW, Manchester (09/10/2008 at 16:15)

Beaufort, I will disagree and say that some posters appear to need simple economics explaining to them. I concede you can call them reserves, but the funds are ear-marked for some kind of use, and are not surplus.

citycentre, manchester (09/10/2008 at 16:45)

so councils recieve money during the year, and have to pay it out during the year; not always at the same times fo example i pay my council tax on the 3rd of each month, salaries my be paid at the end of the month.
since most of the money comes from central government in various grants it has to be somewhere until it is spent

also i would be rather alarmed if each council spent exactly the amount they recieve each month or year, not holding any contigency

anyone fancy having some flooding one year and being told the council will look at it in 12 months because all this years money is spent?

Beaufort (09/10/2008 at 17:26)

citycentre -if you miss a months council tax you get threatened with the bailiffs.

Meanwhile the council owed me £500 on an overpayment that built up so they agreed to refund it.

I chased and chased and it took FOUR months. All I got was 'it should have been paid onto your card' or 'I've requested the cheque'. They investigated my official complaint and the person that phoned me up about the complaint tried to pin the delay on me because I changed bankcards but this was three months AFTER they said every week that it would be on my card within three to four working days. Once I changed cards the cheque woulld also 'be with you within a week'.

Basically he tried to pin it on me so the complaint isn't uphold on their stats.

Why four months to pay eh? Deliberate policy or incompetent? I don't know which worries me most.

Digsy00 (09/10/2008 at 19:18)

Council's receive capital grants at the beginning of the year and spend it across they year, they don't get bacs payments from central government every month.
Perhaps they were trying to get maximum interest on the money to help reduce council tax payments.
Plently of individuals have been stung too, so why are council's any different?

stuart malcolm (09/10/2008 at 19:25)

May I suggest that those Councils feeling the financial pinch start to recoup funds and build up reserves by cutting back or "dropping" the utilisation of their ring fenced copper- bottomed pensions that they love to award themselves and whilst they are at it re-introduce retirement at the same age as the rest of us.That should go for the Public Sector generally. It is somehow ironic that Mr Brown, who plundered private pensions to the degree he did may well have the same traumas inflicted on his own band of Public Service Warriors whose votes he so typically contrived to acquire with our public money.

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