MPs lay blame for Icelandic banks fiasco

Jun 11 2009 by William Green, The Journal

MULTIPLE failures led to councils investing nearly £1bn of taxpayers’ money in failed Icelandic banks, MPs today concluded in a damning report.

The Commons local government committee said “misunderstanding, misinformation and complacency” by local authorities and the wider financial sector were to blame for huge sums of public money being put at risk in Iceland.

Money at risk included more than £43m of North taxpayers’ money, with £23m deposited by Northumberland County Council – the eighth highest amount by a local authority.

In a report published today, MPs said the “unusual” economic events were no excuse for failures in local authority financial arrangements – highlighting how warnings about Icelandic institutions stretched back to 2006.

The Commons committee noted the Audit Commission – which itself has £10m at risk – found councils that did not invest in Icelandic banks had better systems in place.

“Non-investors generally had more effective governance and scrutiny arrangements and took more measured approaches to managing risk,” said the report.

But some local authorities that avoided potential losses were “lucky” and MPs said there was no reason to suppose lapses were confirmed to local authorities with cash at risk.

“The Iceland affair has shown clearly that a number of local authorities fell short of the competence expected of professional clients,” said the report.

MPs called for sufficient checks and balances, with councillors properly trained and audit committee to monitor treasury management in town halls.

There was also an over-reliance on credit rating agencies and the Government should publish statutory guidance on their appropriate use, said the report.

MPs said there was a lack of clarity about whether firms hired by councils to help with investments offered advice or just information – and an inquiry was now needed with some services being “inadequate”.