Council chiefs in plea to Chancellor: 'Save our millions' » Bill Payments » 24dash.com

Town hall bosses urged the Government today to guarantee huge sums of taxpayers' cash invested by local councils in stricken Icelandic-owned banks.

Dozens of authorities are thought to have deposits totalling hundreds of millions of pounds in the institutions such as Icesave.

Now they are calling on Chancellor Alistair Darling to extend the protection he has offered private investors in the banks to them as well.

Local Government Association (LGA) chairman Margaret Eaton wrote to Mr Darling today seeking an assurance the assets would be protected.

She said they had been entirely responsible in selecting Landsbanki as a "reputable bank with a solid credit rating".

Some councils could be hit financially, he said, although frontline services should not be affected by any losses.

"In the short term, these councils are confident that they will have sufficient funds to tide them over for a considerable period of time.

"Councils' experience of ensuring stability in a financial crisis will mean that they will keep vital frontline services running through thick and thin and this situation is no different," she said.

The Chancellor, tackled on the issue while making his emergency statement to the Commons, insisted councils were not in the same situation as individual savers.

"I do know the position about local authorities - I think they're in a slightly different position in that they are more of an informed investor," he told MPs.

"But this situation is evolving, we are trying to sort the matter out with the Icelandic government."

The LGA has so far identified more than 20 councils with deposits in the Icelandic-owned banks, ranging from millions to low tens of millions each.

It said councils were obliged to invest responsibly on the basis of independence and would spread their money across several institutions in case of problems.

Lessons had been learned from the experience of the collapse of BCCI in 1991, a spokesman said.

The Government today took steps to protect the nearly 500,000 UK consumers who have money saved with Icelandic banks.

Mr Darling earlier announced that no UK saver would lose money as a result of the closure of internet bank Icesave if, as expected, its parent company Landsbanki is declared in default.

The Treasury has also arranged for more than £3 billion of UK savers' money that is held with Icelandic banks to be transferred to ING Direct UK, a subsidiary of Dutch savings bank ING Direct.

Shadow local government secretary Eric Pickles said councils had been encouraged by the Government to seek the best rates of return and the Chancellor's failure to give a clear ruling was putting authorities' finances at risk.

"No council could have reasonably foreseen the collapse in Iceland's banks in what once were safe deposits," he said.

"Councils have been actively encouraged and indeed praised by Whitehall to undertake these kinds of investment.

"The Government must take immediate action to identify the scale of the problem and provide certainty to both councils and local taxpayers.

"Alistair Darling has so far failed to give a clear answer about local councils' deposits held in Icelandic banks.

"As a result, local government finances are now at risk and people will be concerned about their local services and council tax bills. The Government needs to stop dithering and clear up this uncertainty."

Town halls faced a "massive financial shock" that threatened council tax hikes or cuts in local services if they could not recover the money, the Tories warned.

Conservatives said they had identified nine individual councils with exposure totalling more than £160 million to the Icelandic banks. Among them were five London boroughs, one of which has exposure of £40 million.

Prime Minister Gordon Brown's spokesman said: "Of course we understand the issues in relation to local authorities and the Government stands ready to sit down and discuss with local authorities any particular issues that may arise."

A senior local government official said later: "It is astonishing that the Government is prepared to bail out irresponsible banks when they get into difficulty and yet, despite following Treasury guidance to the letter, councils and the taxpayer are being told to whistle in the wind."

Liberal Democrat Shadow Communities and Local Government Secretary, Julia Goldsworthy said: “There is an urgent need for clarification as to whether council investments will be protected in a similar way to individual deposits.

“The easiest way for the Government to reassure local taxpayers is to make clear how local authority funds will be protected. Ultimately this is council tax payers' money at risk and these are funds which are essential for the delivery of local services.”