Stricken councils advised by Tory treasurer's firm

The local authorities facing the largest losses from the collapse of the Icelandic banks were all advised by the same company. Kent, Norfolk, Dorset and Hertfordshire county councils and Nottingham City Council and the borough of Barnet all paid for the services of Butlers, which is owned by the treasurer of the Tory party, Michael Spencer, who has a fortune of £1bn.

Three of the six also paid Butlers' parent company ICAP to broker some of their investment deals. One of the others failed to say who brokered its investments.

Between them, the six councils have £207m in Kaupthing, Glitnir and Landsbanki banks or their UK subsidiaries. The money is about 20 per cent of the estimated £1bn potentially lost by local authorities.

Last night, ICAP vigorously denied it had advised the councils to invest in Iceland. Instead, it said it had helped councils make strategic investment decisions according to their attitude towards risk and other factors.

Britain is negotiating with Iceland to secure the return of the money owed to public bodies in the UK. The total has now risen to £1.3bn, including money owed to an estimated 130 councils, 12 charities, nine police authorities, eight universities and even the Audit Commission, which has admitted holdings of £10m.

Kent faces a loss of £50m, Nottingham £42m, Norfolk £32m, Dorset and Hertfordshire £28m each, and Barnet £27m. Kent has called in accountants PricewaterhouseCoopers to investigate its investment.

Local authority finance officers placed their reserves with Icelandic banks after consulting credit ratings. Global credit rating agencies began downgrading Icelandic banks in May but it was only this month that they dramatically changed their view of their vulnerability to the global economic meltdown.

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