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Councils await news of funds invested in troubled Icelandic banks

Released on 9 Oct 2008

Councils across Oxfordshire are amongst at least 40 local authorities in the country that have been caught up in the current Icelandic banking crisis and are waiting to hear when their investments in three Icelandic banks will be re-paid.

The councils, which between them have budgets in excess of £1.3bn, have at any one time, cash flow balances which are invested within the banking sector.

In common with all councils, this investment is regulated to seek cash security and uses national bank ratings to ensure credit worthiness. Councils also ensure that risk is spread by limiting the maximum exposure to any one institution - this applies in financially stable times as well as in the current turbulent times.

The Icelandic banks have been highly rated.

The Oxfordshire councils have £28.5m invested with the Icelandic banks, which is repayable at different dates over the year. The situation with the Icelandic Banks remains unclear and has changed several times over the last 24 hours - the councils are pushing the government for a clear statement on the position of these funds.

How is each council affected?

The breakdown of the funds invested across the councils is:
Cherwell District Council                                              £6.5m
Oxfordshire County Council                                          £5.0m
Oxford City Council                                                      £4.5m
South Oxfordshire District Council                                 £2.5m
Vale of White Horse District Council                               £1.0m
West Oxfordshire District Council                                   £9.0m

National problem

Councillor Margaret Eaton, Chairman of the Local Government Association, said: "We are today seeking an assurance from the Chancellor that councils' assets will be protected in the same way as personal assets. Town halls invested in Landsbanki as a reputable bank with a solid credit rating.

"In the short term, these councils are confident that they will have sufficient funds to tide them over for a considerable period of time.

"Whilst this may affect some councils financially, we do not expect it to have any impact on local services.

"Councils' experience of ensuring stability in a financial crisis will mean that they will keep vital frontline services running through thick and thin and this situation is no different.

"Prudent financial management means that councils put their money into a diverse range of banks to make sure that any risk is spread to minimise the impact of problems in the financial markets."

Oxfordshire County Council

Councillor Charles Shouler, Oxfordshire County Council's Cabinet Member for Finance, said: "The Local Government Association will no doubt be working hard on behalf of the many councils who would have had funds invested with the Icelandic banks.

"We start the year with a total budget of around £1bn. We do not spend all of that money in one go at the start of the financial year in April, so we need to keep it invested in banks ready to spend on our services later in the financial year. We also keep our reserves in such accounts.

"We obviously want this £5m back. It is only a small part of our overall budget but £5million is a large sum of money in anybody's book.

"The council only ever invests in banks that have high credit ratings - the particular bank we invested in had precisely that."

"It is unlikely that there would be any effect on services because we would have to absorb the loss by taking it from the reserves we carry precisely to cover such emergency situations. However we would obviously strongly prefer not to have to do that."

Oxfordshire County Council was praised by the Audit Commission recently for the way it manages its finances. It was given a very high mark when inspectors visited to survey the County Council's work in this sphere.

Oxford City Council

Councillor Ed Turner, Oxford City Council's Executive Member for Finance said: "The City Council has carefully followed Government and Audit Commission guidelines covering management of its loan portfolio and is calling on central government to underwrite any losses arising from the current international banking situation in order to protect local services and council tax levels in future years.

"The City Council has assets worth over £700 million and cash investments of over £45 million. Our prudent approach to managing the Council's finances means there will be no immediate impact on the Council's cash flow or services.

"We are working hard to minimise the impact of the credit crunch on the city council in the future."