Page last updated at 12:40 GMT, Monday, 20 April 2009 13:40 UK

Councils may recoup Iceland cash

Public bodies placed about a billion pounds in Icelandic banks

Councils that had money in Icelandic banks have been given indications they will get most of it back.

Banks in Iceland, holding about £1bn of UK public money, were taken over by the authorities when the country's financial system collapsed in October.

Administrators for Heritable Bank, the UK arm of Landsbanki, have indicated its creditors could get up to 80% of funds back - equating to about £300m.

The Tories said that still meant about £186m of public money would be lost.

If the loss of interest is factored in, it means town halls will have lost more than £200m, they calculate.

'Higher tax'

Shadow local government secretary Caroline Spelman said: "Whatever gloss is put on the news, it is unacceptable that local taxpayers will have lost £200m. This will ultimately feed through to higher council tax or less investment in frontline services."

Heritable Bank is a UK bank which was placed into administration after the parent bank, Landsbanki, was nationalised by the Icelandic government.

Kent County- £50m
Nottingham City - £42m
Haringey Borough - £37m
Norfolk County - £32.5m
Dorset County - £28m

The leader of Kent County Council, which had nearly £50m invested in Iceland's banks, said he was very encouraged by the news.

"They're hoping to make their first payment towards the end of July and August, 70 to 80 pence in the pound they're predicting," said Paul Carter.

"If markets improve, we may get more than that, closer to 90%.

"A lot of the lending book within the Heritable Bank is in property investments. If the property market begins to start to have an upside, we could make an even better recovery," he added.

Council criticisms

BBC business reporter Ben Shore said local government officials had also indicated that negotiations over deposits at other Icelandic banks were going well.

The Audit Commission, which itself deposited £10m in Icelandic banks, has previously said most councils had "heeded warnings" about the declining credit worthiness of Icelandic banks during 2008 and taken action accordingly.

However, it has said that some did not do this, describing a handful as behaving "negligently".

It reserved particular criticism for institutions which continued to deposit money after 30 September, when the credit ratings of Glitnir and Landsbanki were downgraded to "adequate".

This is below that deemed acceptable under guidance to town halls.

The two Icelandic banks went under just over a week later.

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