Councils should save wisely, says Hazel Blears
Oct 29 2008 by William Green, The Journal
MINISTERS have blamed councils for cash being frozen in Iceland’s banks, saying they were not "old ladies with money under the bed".
Communities Secretary Hazel Blears came under fire for the Government’s failure to update investment advice published in 2004 as 123 councils are now caught up in the Icelandic financial crisis.
But Ms Blears said the authorities, which include Northumberland County Council, should have been able to rely on their financial officers to determine the best way of investing.
She said: “I do not accept that there is culpability, certainly as far as that advice is concerned.
“Local authorities are informed investors. You’re not talking here about the old lady with the money under the bed.
“You are talking about people in local authorities who’ve got directors of finance, who’ve got access to external investment advice and therefore ought properly to be making wise and careful decisions.” Tories criticised Government advice issued in 2004 which said councils should prioritise the security of money, but also think about interest payments – with Icelandic banks offering some of the highest.
Communities Secretary Ms Blears defended the advice as sound as she was grilled by MPs amid questions about why North East authorities had deposited more than £40m in Icelandic banks.
Northumberland County Council has a £23m investment, but is not taking up a Government offer of further external support despite initial fears of short-term problems. Ministers hope a switch to a unitary county council – when district council funding will be pooled – will ease pressures.
Ms Blears insisted there was no evidence of any reckless action by councils, but said auditors would be examining any concerns.
She said: “It is important that we do make an assessment and we learn lessons from what has happened.”
But she was unable to say how the Audit Commission – which is supposed to monitor councils – would be dealt with after investing £10m in Iceland itself.
Local Government Minister John Healey said: “We expect the process of local government re-organisation in Northumberland to help the authority to deal with the financial challenges that they face.”
Conservative local government spokesman Bob Neill said problems with Icelandic banks had “not come out of the blue”.
He said: “For Hazel to wash her hands over it is grossly irresponsible. The department can’t walk away. They issued a set of guidance, but should keep that under review.”
