Icelandic Banks

How will council tax payers be affected?

In our Newsletter Special October 2008 we said that council tax payers should not be called upon to bail out local authorities who lose money invested in the Icelandic Banks. Local authorities were warned by the Chancellor in September 2007 to be more cautious and not rely on rankings by credit reference agencies. However, some did not follow this warning and as a result, have lost, at present, some of their reserves and/or pension funds. These reserves are monies received either from Government, local fees and charges or the council tax payer. So called "experts" said that the council tax payer will have to make good any losses. We strongly disagree.

On the 25 November 2008 Local Government Minister John Healey said in a written update that "As a result of our assessment exercise, I am now satisfied that none of the 104 English councils who said to the LGA that they had investments in Icelandic banks are facing severe short-term difficulties as a result of the failure of the banks. However, we will continue to work closely with the LGA to monitor the situation; and we stand ready to fund further financial expert support for authorities who need it."

The full update can be accessed from the 'Icelandic Banks - Support for local authorities' link below.

The good news is that it does seem that at least 90% of the money will be returned, possibly more. With regards to the remaining 10%, we will keep tracking this and should councils try to charge this to the council tax payer, then we will raise this directly with the Government. Our position is that no council tax payer should be double charged for the mistakes of local councils.

Update August 2009

The District Auditor to North East Lincolnshire Council has issued a public interest report on the Council's investments in Icelandic banks. It identifies significant shortcomings in how the Council managed investments in 2008 - and concludes that it failed to protect the interests of taxpayers.

The report says that effective financial control systems were not in operation and senior Council officers did not adhere to the Council's Annual Investment Strategy. If controls had been in place, and professional advice received had been acted on, then the Icelandic investments would not have been made by the Council during 2008. As well as examining in detail how the Council managed these investments, including controls, compliance arrangements and professional practice, the public interest report comments on the Council's own internal investigations, which included disciplinary processes.
Click on the link to read the report. North East Lincolnshire Council - Icelandic investments

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Taxpayers could be out of pocket by £3m	Cheltenham council tax payers could be out of pocket by £3m. Published July 2009.
Audit Commission maintains criticism of late investors in Iceland	Press release; Audit Commission maintains criticism of late investors in Iceland. Published June 2009.
Money in Icelandic banks was at unnecessary risk, say MPs	Report by the Commons Communities and Local Government Committee. Published June 2009.
Local councils recoup millions	Local council to get back on average 90% of their Icelandic investments, possibly more. Published June 2009.
When is the reward worth the risk for councils?	A review of local authority treasury management by Public Service, the provider for all public sector information needs. Published June 2009.
CLG report Local authority investments	Report by the CLG into local authorities investments in Icelandic banks. Published May 2009.
Audit Commission report; Risk and Return	This report examines English local authorities' deposits in the Icelandic banks and their UK subsidiaries. One in four (127) local authorities share 954 million pounds at risk in Icelandic banks. Published March 2009.
Icelandic Banks - Support for local authorities	Local Government Minister John Healey sets out the Government's actions to support local authorities affected by the Icelandic banking crisis. Published November 2008.
Council tax bills face 10% hike after next election due to £1bn loss in Icelandic banks	Gordon Brown has allowed councils to keep their Icelandic losses – totalling £944million – off the books this year. Published November 2008.

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