Councils hope to spread Icelandic investment pain

Local authorities are likely to try to write down losses from investments in collapsed Icelandic banks for up to ten years to help ease pain for their finances, according to a public sector finance expert, in a move that would attract criticism from taxpayer groups.

UK councils, including Kent County Council and Nottingham City Council, have invested more than £850m in Icelandic banks such as Landsbanki, and are likely to ask permission from the government to spread any losses that result from the problems faced by the institutions, experts said.

‘The likelihood is that authorities will want to spread their loss in their revenue accounts over up to ten years rather than taking a big hit in one year,’ said Michael Kitts, a partner at PricewaterhouseCoopers.

Councils are still in the dark as to how much they will eventually lose from the investments, with the government pledging limited support to councils hit by the move.

Iceland’s prime minister Geir Haarde has been condemned for failing to guarantee British savers’ deposits.

‘From the point of view of taxpayers, whose money has been lost, it would be wrong to obscure the fact that [council investment in Icelandic banks] has been a massive mistake. Some cynical local authorities might use [spreading their losses over a number of years in their accounts] as a device to diminish the criticism that will fall on them,’ said Mark Wallace, campaign director at The TaxPayers’ Alliance.

A Local Government Association spokesman said writing down debt sounded like a good idea, although it would probably not be suitable for all councils.

A spokesman for Nottingham City Council, which has around £42m deposited in Icelandic banks, said: ‘We have not yet made any decisions on this and will await guidance from government before doing so.’

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