£35m is held in Iceland crisis (From Bournemouth Echo)

£35m is held in Iceland crisis

8:28am Friday 10th October 2008 in Search By Ian McDonald

TWO local authorities in Dorset have deposits totalling more than £35 million in collapsed Icelandic bank Landsbanki and its UK subsidiary Heritable.

Dorset County Council has £28.1 million in temporary loans tied up in the troubled banks.

And the Dorset Police Authority has deposits worth £7 million in the institutions, which are now under state control in Iceland.

Local leaders have reassured taxpayers that frontline services and operational policing will not be affected.

But both authorities admitted there will be budget implications down the line if the cash is not recovered.

Weymouth and Portland Borough Council and West Dorset District Council confirmed they have no money invested in Iceland’s troubled financial sector.

The Icelandic government has seized control of Landsbanki – along with other banks Glitnir and Kaupthing – as the country tries to avoid national bankruptcy.

But scores of local authorities across the UK have cash tied up in the banks and the overall investment is worth hundreds of millions of pounds.

The Treasury is investigating but no guarantees have been given and the Local Government Association (LGA) is seeking meetings with chancellor Alistair Darling.

Dorset County Council and the Dorset Police Authority are backing the LGA’s call to protect the deposits.

Both said they made the loans to Landsbanki and Heritable months ago when their credit ratings were high.

The county council said there would be no immediate cash flow problems because the money is due for repayment at various times during the next eight months.

The police authority is due to be repaid in the next three months and it too said there would be no significant cash-flow issues.

But both have warned there will be budget implications in the future if the £35.1 million collective deficit is not recovered.

Dorset County Council leader Angus Campbell said: “The council has followed Government guidelines and deposited its cash balances with a wide range of banks to ensure that any risk is minimised.

“We will continue to press the Government to protect our investment and take every possible step to recover this money.”

Dorset Police Authority treasurer Paul Kent said it was 'too early' to know exactly what the financial implications would be.

“The balances invested were earmarked for future capital projects,” he said.

“There will be no immediate impact on our delivery of operational policing.”

The county council manages cash balances for itself and the Dorset County Pension Fund, which in total are worth £225 million.

The police authority’s balances, managed by Dorset County Council, comprise £24.1 million.

Both authorities said Landsbanki and Heritable met 'strict criteria' at the time of the deposits.

But concerned county councillor Brian Ellis warned there could be a 'significant impact' on taxpayers.

He said: “It’s all well and good following Government guidelines but there must be contingency plans in place to protect the people of Dorset.

“If this money isn’t recovered they’re bound to look at council tax and cutting services, some of which aren’t at their best as it is.”

And county councillor Mike Byatt said there were questions that needed answering.

He said: “Why did we hold so much money in this particular bank and was that level prudent? Should we not have spread the risk?

“What is the potential impact on local people in terms of budgets and frontline services?

“These questions have to be asked and someone has to be held to account. How did we get ourselves in this position?”

Other authorities with cash in the collapsed banks include Kent County Council, which has invested £50 million.

LGA deputy chief executive John Ransford said ‘significant amounts’ of public money were at stake and must be protected.

“This is public money and we need to treat this in exactly the same way as individual investments in these banks,” he said.

Unison general secretary Dave Prentis added: “The Government cannot stand by and allow local authorities to lose millions of pounds of council taxpayers’ cash.”