Councils get most of Icelandic cash back

Apr 21 2009 by William Green, The Journal

HOPES have been raised that millions of pounds could be handed back to North councils that invested in failed Icelandic banks – although the full amounts may never be returned.

Around £1bn of UK local authority funds was trapped after Iceland’s financial system seized up in October last year.

That included more than £43m of North taxpayers’ money, with £23m deposited by Northumberland County Council – the eighth highest amount in terms of councils. But according reports, the administrators for one of the banks that collapsed, Heritable Bank, have now indicated creditors will receive around four-fifths of their funds back – equating to a total repayment of about £300m.

The old Northumberland county council invested £1m in Heritable Bank in March last year, while Northumbria Police Authority has £3.5m tied up in the institution and Gateshead Council put in £4.5m.

Northumberland council leader Jeff Reid said: “I am pleased to see that sense has prevailed and that all the accusations and wild doom-laden things about how it is all gone have so far proved to be unfounded. That is why we have taken a steady course.”

The Liberal Democrat also expressed hope that more than 90% of the money would eventually be returned. But the Tories yesterday it was “unacceptable” that town halls face losing £200m from the Icelandic banking collapse.

Shadow Local Government Secretary Caroline Spelman warned taxes will have to rise or services be cut amid suggestions councils could only recoup 80% of their investments.

She insisted councils were set to lose £186m, and that would rise to £200m including loss of interest on the returned capital.