It seems that councils, police and fire authorities, charities and universities will be disappointed in their calls for the government to guarantee deposits totalling more than £1bn in the stricken Icelandic banks.
Ministers have promised aid and said that councils ‘are not on their own’, but have stuck to the line that public bodies are ‘more informed investors’ than your average high-street saver.
That may be so, but three councils are already receiving urgent financial advice and a further ten have also admitted to facing short-term difficulties because of their Icelandic investments.
But, as the Local Government Association has said, the main issue now is to get the money back from Iceland.
The good news is that the book value of Icelandic assets should cover their liabilities. And local government minister John Healey has promised to consider options such as allowing councils to borrow against their losses. Elsewhere, support for town halls has been in short supply. Lord Oakeshott of the Liberal Democrats described authorities that had invested in Iceland within the past month as ‘blind and deaf’.
The LGA, in turn, has pointed the finger at credit rating agencies, although it also conceded that councils making deposits after September 30 should investigate why such investments had gone ahead.
There must be some sympathy, however, for councils that invested in Iceland many months ago and have followed to the letter the government’s investment guidelines. They spread their deposits and looked for attractive interest rates, as they are required to do.
It is easy to be wise in hindsight, but who could have anticipated the extreme events of the past few weeks?
If a blanket bail-out is beyond the pale, then ministers will have to find other ways to ensure that public services do not become victims of the current turmoil.
The prime minister has confirmed that there will not be cuts in health or education funding. But other services are very much in the line of fire. Next month’s Pre-Budget Report will give an indication of where the government’s priorities lie.
