Blears defends advice given to councils caught up in Icelandic banks crisis » Local Government » 24dash.com

Communities and Local Government Secretary Hazel Blears today defended the investment advice given to councils with millions of pounds now tied up in failed Icelandic banks.

Challenged at Commons question time, Ms Blears said the guidance issued by Government was "prudent and responsible" and insisted councils which followed it would have made "well-informed" investment decisions.

She said further talks would be held tomorrow with the Local Government Association to "try and identify the authorities who are struggling with these issues".

But none of the affected councils would "struggle to meet their payroll bill" and many had said there would be no impact on frontline services.

"We will ensure that where people are in difficulty then we stand ready to help. We now have a rapid response team, fully staffed by people from local government, able to go in and assist."

Her comments came as shadow communities secretary Eric Pickles asked why no additional advice had been issued since 2004, saying: "There is a difference between light touch regulation and neglect."

Senior Tory Sir Peter Tapsell (Louth and Horncastle) raised the issue initially, asking: "To what extent have the Treasury and your department been coordinating the advice given to the regions and to local authorities about their investment policies?

"Bearing in mind that the credit rating agencies since February 2007 have been drawing attention to the weakening financial position of the Icelandic banks and that Moody's many months ago downgraded them to triple-B rating - which is extraordinarily low for Western banks'
ratings - how does it come about that these local authorities have nevertheless apparently lost vast sums of council tax payers' money?"

Ms Blears: "You may have other sources but I think perhaps you are quoting from a report that was in the Telegraph about the credit rating agencies' assessment of these particular banks.

"I can say to you that that is not an entirely accurate depiction and I am sure that when you get the full picture you will know that the credit ratings for a considerable period of time were actually relatively high in terms of the local authority investments.

"What I would say is that the guidance which we issue, which was issued in 2004, actually says to local authorities that they must give priority to security and liquidity and only within that context must they look for where they can get the highest return.

"I think this guidance is absolutely prudent and responsible, and local authorities who have followed that guidance and ensured they have spread their investments, and at the same time have prioritised security and liquidity, will have made good and well-informed investment decisions."

Mr Pickles said the Secretary of State had admitted that no advice to councils on investment had been issued since 2004 and "the advice on Icelandic banks remained good until almost the end".

Other financial advisers were advising clients to avoid Icelandic investments, he said. "Why was no additional advice issued to local authorities in the intervening period?"

Ms Blears said: "Local authorities are informed investors. They are major organisations. They have fully qualified and professional directors of finance, treasurers and people who have access to the very best advice.

"The advice that was issued by the Government was on the criteria to be taken into account ...

"That advice is very clear that security and liquidity are the top priority and it is only within that context that local authorities then should seek to get the highest return for their investments.

"Local authorities are well informed and intelligent investors."

Mr Pickles said her department had still not produced a comprehensive list of affected authorities and asked if she was looking at the investments of housing associations and regional development agencies.

"Until we have a comprehensive list, the Government cannot take serious action," he protested.

Ms Blears said the Government so far had details of 116 local authorities with £858.3 million invested in Icelandic banks and was looking at the position of housing associations.

"I can assure you that not only is this Government on the case, this Government has taken bold and decisive action which has been welcomed everywhere."

For the Liberal Democrats, Julia Goldsworthy said that with close to a £1 billion tied up in the collapse, "if not local authorities, who or what do you think is to blame - the credit rating agencies, the organisations advising the councils or your department for the guidance it issued?"

Ms Blears said it wouldn't help to "play the blame game" when the Government was trying to help councils in difficult economic circumstances and get stability back into the banking system.

Later, in a Commons written statement, Ms Blears said the Government's advice "appears to have been adhered to".

She added: "Many authorities have already publicly stated that any risk is not a threat to frontline services. But a small number of authorities may have specific problems, which is why we have put in place support and expertise which is immediately available.

"No local authority has told the LGA that it is in such short-term difficulty that it cannot pay the wages of its staff.

"We will continue to monitor the situation closely and take appropriate action."