Thursday, March 26, 2009

Councils Shopped 'Til They Dropped At Iceland

Greedy councils and public bodies caught out shopping at Iceland have been shopped by the spending watchdog which has branded some of them a 'negligent' bunch for shopping right up to closing time. But councils weren't the only ones who kept mum while shopping at Iceland - the audit commission itself is up there with the worst of them. 

Millions of pounds of council tax and profits from property sales were squirrelled away in Icelandic slush funds, despite the warning bells and with lame treasury advice. 

The BBC puts the figure around £1 billion, revealed here in deposits in the collapsed Icelandic banks from a whopping 111 councils and 16 public bodies, with Transport for London at £40m and  Kent council's £50m at the top of the heap,  as well as police and NHS trusts and £10m from the audit commission. 

That's £1 billion of public money that could have been spent on rubbish collection, coppers, libraries, jobs and a decent wage for council workers. 

Now it's revealed seven councils in England "acted negligently" putting £33m of taxpayers' cash into the banks days before they went bust last October, according to the local government spending watchdog.

The Icelandic connection revealed the extent to which councils, police and other public bodies like Transport for London, had huge deposits in Icelandic banks.

The so-called cash-strapped councils and police authorities, cried foul after Iceland refused to cough up their cash. 

But public bodies, are classed as "informed investors". Informed means they should have realised what was going on. They are supposed to be, er, informed. 

Instead greed took hold, as million of pounds of our cash was stashed away for a quick profit and putting the pensions pot at risk. 

These investments do not have the same protection as individual deposits in Icelandic banks, guaranteed by the goverment after the meltdown of Iceland's banking system.

Preaching to the newly converted, the audit commission reckons "the potential loss of nearly a billion pounds is of great concern". So it should be - the audit commission itself deposited £10m in Icelandic banks. 

Talk about the pot calling the kettle black. That's twice the level of exposure of Kent council. A point not missed on naughty Kent, accusing the commission of hiding behind a smokescreen. 

Many saw this coming. Credit ratings agencies were warning public authorities of the risks back in the spring. LibDem treasury spokesman, Lord Oakeshott, revealed he warned the treasury back in July but they were "blind and deaf" and all he got back was waffle.

Yet 127 English local authorities still had £954m deposited with the two Icelandic banks when they went bust, 3% of the total funds held on deposit by English authorities.

The fate of that £954m remains uncertain though the local government association reckons councils are expected to get back the "lion's share" of their Icelandic investments".

But the questions still remain. How come councils, police authorities and the rest have got so much cash swilling around to invest? If they've got so much cash, why does our council tax keep going up? What checks were made by government on council investment? 

Treasury officials tried to smooth things over with the Icelandic government after Brown's diplomacy - to  use anti-terror laws to freeze the UK assets of Icelandic bank, Landsbanki - went down a bomb in Reykjavik. 

And at the time of the Iceland bank collapse, blameless Brown was quick to point the finger of blame at poor little rich Iceland: "They have failed not only the people of Iceland; they have failed people in Britain."  

The Orange Party thought at the time that was a tad too quick  and his own treasury could have done more. 

The government was adamant local authorities had not been "reckless" in investing with Icelandic banks. Well someone had been and after today's watchdog report, clearly someone was.

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