10:50am Friday 10th October 2008
24 MILLION pounds of Lancashire taxpayers’ cash is at risk after being invested in ailing Icelandic banks.
Most of the money was deposited in Landsbanki, which has been taken under control of the Icelandic government in a bid to keep it afloat.
Council tax could rise and services be cut if the Lancashire County Council, Lancaster City Council and Chorley, Burnley and South Ribble borough councils and the county’s police and fire authorities cannot recoup the money.
Councils invest their budgets in a number of banks in a bid to minimise the potential damage caused by the failure of a single financial institution.
Find out below if your council has been affected:
Lancashire County Council - £9m
Lancashire Police Authority £600,000
Lancashire Fire Authority £400,000
Lancashire's three-month investment was deposited in the Icelandic bank on September 2, and was due to be returned on December 3.
And with millions more in council funds invested in other overseas banks, County Hall cabinet member for resources Tony Martin admitted council coffers could be hit further if more collapsed.
He said: "That is my big worry. But if you can tell me which banks are going to go down next I will take my money out of them.
"We have spread the risk as finely as we could. But I am not saying services won't be affected, I am saying we will do our level best to protect front-line services."
Of the £10million deposit in Landsbanki from Lancashire, about £2.5million was an investment for County Hall's pension fund and £6.5million was council revenue funds, which would have been allocated to specific projects.
Lancashire Police Authority accounted for just over £600,000, and the remaining cash belongs to the Fire Authority.
The council cash represents about two per cent of its total budget.
The council's ruling cabinet discussed the situation at a meeting yesterday. Lib Dem David Whipp said the government should step in and save councils' investments.
Speaking afterwards, Conservative group leader Geoff Driver said: "We have obviously got to be concerned that £10million of Lancashire people's money is at risk.
"£10million is a big hit, and if we do lose it we won't be able to swallow a sum like that."
A statement from Lancashire Policy Authority said: “It is important not be alarmist about this situation. This is an unprecedented event due to the current worldwide circumstances.
“The deposit is not due for repayment until 2 December 2008 and at this stage the bank has not indicated that it will default on the repayment.”
Burnley Borough Council - £1m
Burnley Council leader Gordon Birtwistle said it was “an unprecedented event in unprecedented times”.
Coun Birtwistle said: “Landsbanki was selected for our banking list based on independent financial advice.
"It was a reputable bank with a solid credit rating.
"The nature of the collapse and the actions of the Icelandic Government could not have been foreseen.
“I know that the Chancellor is concerned about the Icelandic Government’s role in this and was pleased that he moved quickly to freeze the British assets of Landsbanki.
"I hope he can help us sort out this mess and ensure there is no impact on our Council Taxpayers whatsoever.”
Coun Margaret Lishman, executive member for resources at Burnley Council, said there would be no “immediate impact on services”.
She added: “We manage the council’s investment responsibly and prudently in accordance with independent financial advice and Government guidance.
"As part of this management we placed £1 million on short-term deposit with Landsbanki.
“Essentially, the council deposits money in a number of banks with strong credit ratings for short periods in order to spread risk.
"Despite having a strong credit rating Landsbanki has defaulted on its repayment.”
The £1million was invested out of the council’s total budget of £94million.
Chorley Council - £2m
Chorley Council’s executive member for resources Alan Cullens said: "We have an investment with [Landsbanki] which is due to mature in December, which means we are currently not affected, but clearly the banks assets are frozen at the moment and many local authorities are in a similar position.
“It was considered an excellent option for Chorley and many other councils because of its high-rating within the financial sector.
“I would reassure Chorley residents that we are doing everything possible to bring this issue to a positive conclusion during a very uncertain and unforeseen time."
Lancaster City Council - £6m
The council's chief executive, Mark Cullinan, says: "As part of its investment strategy Lancaster City Council currently has a portfolio totalling £24million spread across a number of financial institutions.
"The amount invested can vary daily, given that the council can reasonably expect between £200 to £250million passing through its bank accounts in any one year.
"The Council uses the investment income generated to help fund its annual budget in providing services.
"Around £6million of the current portfolio is invested in three Icelandic banks.
"At the time of making these investments, the banks concerned were reputable institutions with high credit ratings."
South Ribble Borough Council - £5m
Councillor Colin Clark, cabinet member for finance and resources, said that the council has a number of investments which are spread across many different financial institutions.
"Landsbanki was considered an excellent investment option for South Ribble and many other councils because of its high rating within the financial sector.
"I would also reassure residents that we will continue to do everything possible to bring this issue to a positive conclusion during a very uncertain and unforeseen time.
Hyndburn Borough Council - none
Hyndburn Council has reason to be cheerful after moving £10million of cash from an Icelandic bank to an Irish firm before the crisis took hold.
Financiers at the council made the decision to move taxpayers’ money into Irish accounts around the time of the Northern Rock crisis.
Coun Marlene Haworth, cabinet member for finance said: “In the last few days we have made substantial investments into Ireland, as the Irish Government has given a full guarantee on all deposits made with certain Irish institutions.
“We are sacrificing interest rate for safety when making deposits and trying to place our money where we believe Governments would not let a bank fail - even if it got into severe difficulties.
“I believe we are taking all the appropriate action to protect the funds of the council in the present climate.”
Blackburn with Darwen Borough Council - none
Blackpool Borough Council - none
Fylde Borough Council - none
Pendle Borough Council - none
Preston City Council - none
Ribble Valley Borough Council - none
Rossendale Borough Council - none
Wyre Borough Council - none
All have confirmed they are not affected.
Nationally, more than £700million of council cash is invested in Icelandic banks.
The Local Government Association is urging our Government to guarantee against any losses, but Chancellor Alistair Darling said local authorities were “more of an informed investor” than private individuals.
Mark Wallace, campaign director at the TaxPayers’ Alliance, said: “People will be shocked that the councils had this money stashed away in the first place.
”Every year we hear that councils don’t have enough money and need to raise taxes but it seems they have had sufficient excess tax to salt tens of millions of pounds away. It’s an absolute disgrace.”
Meanwhile the GMB union has called for an inquiry into why councils are investing in high-risk accounts.
Reporting team: Tom Moseley, Emma Cruces, Chris Gee, Nazia Parveen and Chris Hopper.
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