Ministers to hold talks with council leaders over 'missing millions' » Local Government » 24dash.com

Ministers are to hold talks later today with local government leaders about the hundreds of millions of pounds invested by British local authorities in Icelandic banks.

With councils warning the money could now be at risk, Treasury Financial Secretary Stephen Timms said Treasury ministers would be meeting with the Local Government Association this afternoon.

His disclosure came during a 90-minute emergency Commons debate on the financial crisis.

One authority alone - Kent County Council - has £50 million deposited in troubled Landsbanki and its UK subsidiary Heritable, as well as Glitnir Bank, while more than 20 others are thought to have exposure running into millions of pounds.

Transport for London said it has a £40m deposit with Kaupthing Singer & Friedlander, which has been placed into administration.

The Local Government Association yesterday urged the Government to guarantee them against any losses, after Chancellor Alistair Darling announced he would protect the savings of private investors in Icelandic banks.

Conservatives said town halls faced a "massive financial shock", threatening council tax hikes or cuts in local services.

Liberal Democrat Paul Burstow (Sutton and Cheam) raised the plight of councils in the debate saying that while the Chancellor had been clear about the situation relating to private depositors, he had not been so clear about what was intended for local authorities.

"My own local authority, the London borough of Sutton, has £5.5 million in a subsidiary of Landsbanki invested in line with the guidelines issued by the Treasury and in a prudent fashion.

"They want to know what will happen to that money and whether the Government will stand with them, with council taxpayers, to make sure that money is safe."

Mr Timms said: "There will be a meeting this afternoon between the Economic Secretary (Ian Pearson), the Minister of State for Local Government (John Healey) and the Local Government Association to consider exactly that issue."

Mr Timms defended the Government's use of anti-terrorism legislation yesterday to freeze an estimated £4 billion of British financial assets in Landsbanki, Icesave's parent bank, after turmoil in the Icelandic banking sector.

He said this had been done to "protect UK economic interests" and assured British depositors their money was now "safe and secure".

He also offered to work "co-operatively and constructively" with the Icelandic Government to help deal with the "exceptionally difficult challenges" facing the country's banking sector.

"We have, though, been unable, so far, to obtain complete clarity from Iceland on the position, so the freeze we introduced is a precautionary measure, protecting UK interests.

"It could be lifted once safeguards are in place to prevent action detrimental to the UK economy."

Mr Timms said of the financial crisis that these were global problems requiring national and international solutions, while again pledging to do "whatever is necessary" to maintain stability.

He said the Chancellor had yesterday taken "decisive and comprehensive action" with the £50 billion bail-out for banks in a bid to restore confidence and put them on a stronger footing.

With the price of oil falling, Mr Timms also urged petrol companies to reflect the reductions in the prices charged at the pumps to motorists.

Labour's Mark Lazarowicz said the example from Iceland should serve as a warning sign, and hailed the Government's rescue package.

Mr Lazarowicz (Edinburgh North and Leith) said: "The local authorities who are now facing the loss of millions of pounds as a result of the failure of the Icelandic banks, emphasise how the effects of a bank failure rapidly spread out into the wider world.

"If, heaven forbid, one or more of the big British banks were to fail then it wouldn't just be a few local authorities who would be facing the situation that a few are now doing - every local authority in the country would have severe difficulties to meet their pension commitments and to continue to to provide vital services for their communities."

He added: "It was right for the action to be taken, why it had to be dramatic and bold action. Because we have to remember it was the [financial] collapse in the 1920s that was one of the contributors eventually to the growth of dictatorships, the growth of fascism, and ultimately the Second World War itself.

"Now that may sound dramatic, but it is a reminder of the reality which we could face if the banking system were to come under serious crisis and were to seize up if action were not taken at international level."

During the wider debate on the economy, Mark Hoban, for the Conservatives, raised a number of detailed questions about how the rescue package would work in practice.

Mr Hoban said taxpayers would particularly want to know why the action was necessary and how anyone was going to know if it had worked.

And he reiterated Tory support for the measures, saying: "Taxpayers do want to see the end to the age of irresponsibility, but they also want to see responsible lending reopen.

"And this is the true test for this package, and we hope the package meets that test."

Jeremy Browne, for the Liberal Democrats, also gave the rescue plan his party's backing.

He called on ministers to take advantage of plunging property and land prices to buy up stock for social housing.

And he warned that Bank of England that it was not the time for "incrementalism", saying further interest rate cuts were necessary.

"We do not know whether the Government action will succeed, but we do know that it must succeed - because the only plan B we have available to us is to continue with plan A until we are clear of the crisis," Mr Browne added.

"Financial stability is essential, it's essential for the workings of our entire economy and that is why the rescue package announced by the Prime Minister and the Chancellor has our support."