Extend banking bailout to councils

The hope that the public sector would be immune from the worst effects of the crisis gripping world financial markets was shattered for good last week with the collapse of Iceland’s banking system.

More than a quarter of councils in England and Wales and hundreds of charities had deposits totalling nearly £1bn in the three main Icelandic banks. Although the government quickly pledged to reimburse the entire amount individual savers had lost as a result of the collapse, it is still unclear whether similar protection will be given to the deposits of local authorities and voluntary organisations.

Council leaders say most of the lost money was earmarked for a rainy day. Unfortunately, new evidence is emerging that hard times are just around the corner, if not here already. Home repossessions are predicted to rise by two-thirds this year, while enquiries to Citizens Advice from people struggling to repay mortgages rose 51% during the past three months compared to the same time last year. This is before the sharp rise in unemployment forecast for later this year has taken effect. All this will put extra pressure on council services and charities at a time when both are at their most stretched financially.

It has been agreed that councils facing imminent funding difficulties will be given financial help, but surely if it’s right to bailout the banks for their irresponsible investment decisions there is a strong moral and pragmatic case for the government to extend this to public and voluntary organisations that have done no wrong.

This article is published in the 16 October 2008 edition of Community Care under the headline “Bailout needs extending”