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Damning report: Havering Council was negligent putting millions into Icelandic banks
Katharine Barney, Evening Standard26.03.09
A COUNCIL which may have lost £12.5million of tax payers' money in the Icelandic banking crisis is accused of negligence in a damning government report published today.
Havering council, which has six members of staff earning more than £100,000, is among seven local authorities heavily criticised by the Audit Commission for depositing money in the banks after their credit rating had fallen.
Between them the "negligent" authorities put £32.8million into the banks from 1 October last year, just days before Iceland's financial system collapsed.
Councils pay private treasury advisers for information which they receive from credit rating agencies. The report found 144 local authorities across the country hold deposits totalling £953.53 million which are now at risk in Iceland.
In London, £123.1million is at risk from 11 councils, the Metropolitan Police Authority and Transport for London leading to fears of service cuts and council tax rises next year.
The Audit Commission itself had £10million in two Icelandic banks.
Steve Bundred, chief executive of the commission, said: "The circumstances leading up to the collapse of Icelandic banks were highly exceptional, but the potential loss of nearly £1 billion is of great concern ... one in four local authorities has money at risk. We found most local authorities heeded the warning signs about Icelandic banks. But some did not, and a number were negligent. Our report shows there are lessons that must be learned by everyone - local government, central government, Cipfa [the Chartered Institute of Public Finance and Accountancy] and the commission itself."
But a spokeswoman for Havering said it was not told the banks' rating had fallen from an A to BBB (adequate) until an email was sent 20 minutes after a £2million deposit was made on 1 October.
The council's legal department is considering taking action against the commission for labelling it "negligent".
Cheryl Coppell, the council's chief executive, said: "We are outraged the commission has described us as 'negligent'. This accusation is not backed up by any evidence and we have demanded a full retraction. The deposits made into Heritable were made on 1 October, before we were informed of the credit ranking change by Sector Treasury Services. This has been verified by an independent review by PriceWaterhouseCoopers.
"We have been open and transparent right from the start when we were one of the first councils to publicly announce we had money invested in Iceland. This issue has had no impact on services and we remain confident that we will get the money back."
Councillor Margaret Eaton, chairman of the Local Government Association, said: "The LGA, working with councils, expects to get the lion's share of this money back and is working flat out to make sure that the council taxpayer is top of the list for repayment."
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