Page last updated at 17:32 GMT, Thursday, 9 October 2008 18:32 UK

Wales feels heat of bank crisis

By Phil Parry
BBC News

Bank notes

Within a few hours it was clear the ripples from Iceland's banking disaster had reached Wales.

And soon after the news broke local authorities were almost outbidding each other as they confessed to how much of their money was exposed.

Rhondda Cynon Taf - 3m. Ceredigion - 5.4m. Then came Caerphilly - 15m, but later in the afternoon it emerged that two police authorities were affected, and Neath Port Talbot Council had deposits worth 20m.

"Extraordinary... unprecedented" were words rarely used by staid public officials. Now they came thick and fast.

Politicians - and journalists - struggled to come to grips with the scale and speed of events.

The current tally for local councils and police authorities stands at over 66m.

Steve Thomas
Steve Thomas described the situation as "worrying"

Had any local council got out before the collapse? Reports said some local authorities had pulled out their money - sorry our money - just in time.

Pity then poor old Caerphilly council with 15m in all - 5m with Landsbanki and 10m with a UK subsidiary, Heritable.

It was all a "very worrying development" said Steve Thomas of the Welsh Local Government Association with admirable understatement.

He was speaking from Llandudno where his association was holding its annual conference.

Not normally an affair that excited journalists, now it was the centre of attention.

Councillors and officials were seen with mobiles glued to ears as they tried to keep pace with events.

Rumours in the conference and in newsrooms fed off each other. Was there anyone worse off than Caerphilly?

Steve Thomas went on to emphasise it was a "serious situation" and he would "hate to see" this have any impact on council tax payers.

There's the rub.

No one can tell of course who will ultimately have to pick up the bill for this, if there is one, or how big that bill might be.

And no one can be sure what, if anything, will be the impact for all of us on services.

Welsh secretary Paul Murphy tried to reassure council tax payers about higher bills.

"As far as Welsh taxpayers are concerned, I don't think there is any case at all for them to be concerned about this on their tax bills," he said.

Fine words but that was before the numbers had mounted to more than 35m for councils overall in Wales. And counting.

Landsbanki and woman in Iceland
Landsbanki owned the internet bank Icesave, with 300,000 UK customers

Much would hang on meetings between local authorities and the UK Government that were to take place through the afternoon.

What exactly could the politicians in power do anyway?

One key demand was that funds saved by councils with the Icelandic banks should be guaranteed by the UK government just as was happening with individuals.

Dai Lloyd of Plaid Cymru said: "This is a very serious situation for local authorities..." (this we know) "...I'd ask the prime minister and chancellor of the exchequer to give assurances as soon as possible that they will cover any funds lost by councils in this way."

The Welsh Lib Dems echoed the call - "The Westminster Government is going to have to compensate these councils if the money is lost," said Jenny Randerson, AM, their spokesperson for finance and local government.

But then the politics of it all became as fascinating as the unfolding financial story.

The UK government, in the form of the local government minister in Westminster John Healey said councils weren't like private individuals - they had lots of professional advice about where to stick our money.

In other words they were on their own.

Alarm

But how long would that stance last as ministers met local authority representatives and the size of the problem became clearer?

And it has drawn the inevitable response from the Tories that it was the Government "dithering" - that classic accusation which did so much harm to Gordon Brown until this crisis came along to throw a lifeline.

But the political mud-slinging can wait as council tax payers around Wales prepare to hear how much the lure of the north was too much for local authorities.

Local government financing has never seemed as interesting .... or as alarming.


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