LGA seeks ministerial help for councils hit by Iceland bank crash

The Local Government Association has urged ministers to give councils affected by the Icelandic financial crisis short-term relief to ensure none faces cash flow problems.

LGA leaders are meeting Treasury and Department of Communities and Local Government ministers today to discuss the situation.

Earlier today, the LGA said at least 45 councils had money deposited in banks affected by the crash in Iceland but is due to publish a revised, higher figure later today

Councils ‘should receive same protection as individuals’

It has urged chancellor Alastair Darling to ensure that council deposits in banks including Landsbanki – which runs the Icesave scheme – are protected in the same way as individual savers. The Treasury has pledged that no retail depositor will lose any money as a result of the closure of Icesave.

Pending an agreement on councils receiving the same guarantee, the LGA called for councils to be allowed to defer passing on business rates collected locally to central government, to ensure access to cash where necessary.

However, the LGA stressed that no councils were experiencing cash flow problems at the moment.

Breathing space

LGA chair Margaret Eaton said: “Allowing a certain breathing space for a small number of councils that could be affected is necessary and needed. These would be temporary, short-term measures until the chancellor can reassure councils that their deposits are protected in the same way as personal assets.”

Councils reportedly affected include Kent (£50m deposited), Barnet (£27m), Westminster (£17m), Brent (£15m) and West Sussex (£12.9m).

A DCLG spokesperson said: “As the chancellor said yesterday, local authorities are in a slightly different position to individual savers as more informed investors. However, in addition to the action taken to protect depositors, the government has frozen the assets of Landsbanki to ensure that UK creditors, including a number of local authorities, are treated fairly.”

Councils crucial

Unison general secretary Dave Prentis warned: “The government cannot stand by and allow local authorities to lose millions of pounds of council taxpayers’ cash. Local authorities have a crucial role in protecting individuals, families and communities from the effects of an economic downturn.”

More information

Treasury statement on Landsbanki



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