Icelandic losses met by seizure

The Icelandic assets seized by the UK Government under anti-terror laws are more than enough to pay back British savers caught up in the country's banking collapse. At least £4bn is thought to have been frozen in the immediate aftermath of the collapse, £1bn more than councils, charities and individual savers stand to lose.

The decision to invoke anti-terror laws was described by the Icelandic Prime Minister, Geir Haarde, as a "completely unfriendly act".

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But the news that the British Government looks capable of paying off any losses with seized assets appeared not to have calmed local councils, many of which have invested millions of pounds in Icelandic saver accounts. This week representatives of local authorities which have invested hundreds of millions of pounds in investment banks will meet the Icelandic ambassador in the hope that they can win assurances that their investments in the bankrupted country will be repaid.

The Local Government Association (LGA) said an estimated 108 councils had deposited almost £800m in Icelandic banks. The LGA has already had a meeting with the British Government and won a promise that authorities facing severe short-term difficulties will receive assistance.

Fears have been raised by unions that some councils may have used Icelandic accounts to hold payroll. Although no council has admitted salaries are at risk, Braintree in Essex is thought to be one council in such a position. Unison, which represents local government workers, has written to the LGA expressing "grave concern" about any salary shortages that may possibly result from the collapse.

Meanwhile, the billionaire businessman Sir Phillip Green looks set to invest up to £2bn in a troubled Icelandic retailing group that owns House of Fraser, Karen Millen and Hamleys. Sir Philip has held talks with the Icelandic government about buying debt from the retailing group Baugur, thought to have lost over £1bn in the crisis. Sir Philip, who owns Bhs and Topshop, described Baugur as "fundamentally sound".

The tycoon criticised the "barrage" of negative news in the media, which he described as "fundamentally unhelpful" to Britain's economic recovery.

"We have not yet seen significant corporate collapse," he said. "We haven't seen significant unemployment. Do I think there are pressures in the economy? Of course. But if we keep frightening everybody it will feed on itself."