Kent Council leader: 'Move public money to British banks' » Central government » 24dash.com

The authority with the largest investment in Icelandic banks insisted today that British taxpayers' money should be in British banks - but called for Government assurances that it would be safe.

Kent County Council, which has £50 million deposited in troubled Landsbanki, and its UK subsidiary Heritable, as well as Glitnir Bank, claims it is taking the lead by calling on public agencies to invest in British banks.

In a letter to Chancellor Alistair Darling, council leader Paul Carter said that moving all public sector and charities' investment to British banks could boost liquidity for UK banks.

But Mr Carter said that any such move should be supported by a guarantee from the Government that that public money would be safeguarded.

In his letter, Mr Carter said: "Our contention is that by working closely together, central and local Government could redirect this sizeable level of cash investment into the British banking system.

"This could improve liquidity for these banks, on the basis that a suitable guarantee could be provided to local authorities.

"We believe this could provide a significant 'win/win' position for all concerned and demonstrate to the public that we are jointly doing all we can both to protect both our banking sector and local taxpayers money.

"Aligning our national interests in this way would also ensure that when problems occur, resolution can be clear and swift."

Of the £463 million that Kent County Council has invested, some £163 million is invested abroad in the "highest rated" organisations.

Mr Carter added that the experience this week with Icelandic banks proved that the perceived wisdom of "diversifying risk" by investing in high-rated organisations could no longer be relied upon.

He went on: "This is not a matter of individual or local government competence, but an issue of national and international conditions."

Meanwhile, Treasury officials were today in Iceland for urgent talks after the collapse of the country's banking sector left councils and charities in Britain facing losses of up to £1 billion.

The crisis sparked a furious war of words between London and Reykjavik, with Prime Minister Gordon Brown denouncing the "totally unacceptable" failure of the Icelandic authorities to guarantee UK depositors would get their money back.

Icelandic Prime Minister Geir Haarde in turn blamed Britain for the collapse of his country's third largest bank, Kaupthing, after the Government used anti-terrorism laws to freeze Icelandic assets in the UK.

Downing Street confirmed that the Treasury delegation - which included officials from the Bank of England and the Financial Services Authority - was in Reykjavik.

Mr Brown's spokesman said they hoped now to work "constructively and cooperatively" with the Icelandic authorities. However he strongly defended the Government's action in freezing the Icelandic assets.

"The Prime Minister made clear, as is the case, that the behaviour of the Icelandic authorities had been unacceptable," he said.

"We had found it very difficult to get information from them. They had indicated that they would be giving preferential treatment to domestic creditors over overseas creditors."

Despite a another turbulent day on the markets, with the FTSE suffering more heavy losses, Mr Brown was carrying on with a visit to the South West, including a meeting with pensioners in Swindon, Wilts.

"Obviously he remains in minute-by-minute contact with Downing Street," the spokesman said.

The Government has promised individual savers with deposits in Icelandic accounts that it will reimburse any losses they suffer, but it has been resisting calls to extend the guarantee to local authorities and the charitable sector.

More than 100 councils, as well as police forces, fire services and transport authorities, have deposits running into millions of pounds each in the crisis-hit institutions.

Private companies are thought to have in excess of £10 billion in Icelandic accounts they are unable to access. Charities, too, have tens of millions of pounds on the line.

Following talks yesterday between the Government and the Local Government Association, ministers said only that those councils facing the most severe difficulties would receive "appropriate" support.

City Minister Paul Myners will hold further talks with representatives of the charitable sector today.

LGA spokesman Ed Welsh said the losses were unlikely to cause immediate difficulties, as the money held in foreign banks was to earn interest rather than for current expenditure, but could have implications for the future.

"We are hopeful this will not have an impact on frontline services. In the long term, there may be an issue but it means deferring payment or tightening our belts," he told GMTV.

He defended local authorities' failure to withdraw their money from Icelandic banks sooner, arguing that no one could have predicted the crisis.

"Everyone has got this wrong, this is not just an issue about councils," he said.

"This is an enormous problem for many countries in the world, for most banks in the world. No one was keeping up to speed with it. No one could have predicted this a year ago.

"This is a problem that has been caused by Iceland. It is totally unacceptable behaviour," he said.

Last night, Mr Brown said he was determined to pursue the issue with the Icelandic government.

"I think we've got to be clear there is a responsibility on the Icelandic authorities to respond," he said.

"They are the regulators, they are the supervisors, they are the people responsible for what the Icelandic banks based in Iceland are doing, and we expect them to honour their obligations."

Mr Haarde, who spoke yesterday to Chancellor Alistair Darling by telephone, said Britain's use of the anti-terror laws to freeze the assets of Icelandic banks in the UK was a "completely unfriendly act".

"I told the Chancellor that we were not pleased with that, that they could not regard us in any way as the people that this Act is supposed to apply to - terrorists. I think he agreed," he said.

Mr Brown, visiting Swindon, reiterated today that it was up to the Icelandic authorities to find a solution to the crisis.

"This is the responsibility of the Icelandic authorities. They have got to take responsibility for this situation," he told the BBC.

"There are a lot of investigations to be done as to where the money is held at the moment. We have asked the Icelandic authorities to return money that should have been left in Britain."

Mr Brown said of the £500 billion rescue package for the British banking system: "I think we have made the right decision.

"We are trying to get banks to do what they have traditionally done. We are restructuring the banking system and we are doing everything we can. What we need now is for other countries to do similar things.

"This is a global problem and I'm trying to get other countries to do what we have done."

The Prime Minister said "it will take a few days" for the measures put in place in Britain to play out in the markets.

Speaking about local authorities which have invested money in Icelandic banks, Mr Brown said: "We are doing everything in our power for the money to be returned."

He said the UK Government was talking to the Icelandic authorities and taking legal action to secure investments at risk.

Speaking earlier at a Health Through Warmth launch event put on by energy supplier npower in Swindon, Mr Brown said: "I am determined that we in Britain lead the way in making every pensioner and every household feel secure."

The Prime Minister outlined various measures to help low income and vulnerable people over the winter months.

He also told of the need to keep oil prices stable for the customer and emphasised the need for any fall in oil prices globally to be passed on to customers.