Tory chief's firm faces questions

A company run by the Conservative Party treasurer Michael Spencer gave advice to almost half the councils facing a funding crisis as a result of the collapse of Iceland's banks, an investigation by The Independent reveals. Those councils who used Butlers for strategic advice were almost twice as likely to have lost money in the three main Icelandic banks as those advised by other companies.

Of the 116 local authorities who lost money, 51 received advice from Butlers. Their losses totalled £470m, more than half the total amount of council funds frozen in the banks.

The Independent's two-month investigation has been passed to the Communities Select Committee, which today begins an inquiry into local government finance, sparked by the disastrous decision of councils to invest £886m in Iceland's economy.

Councils such as Kent (£50m), Norfolk (£32.5m), Dorset (£28.1m), Hertfordshire (£28m) and Barnet (£27.4m) ploughed millions into Iceland's tottering banks to take advantage of market-beating interest rates. Butlers also brokered their investments through its parent company, ICAP, among other brokers, all of whom received commission from the Icelandic banks.

ICAP insists the two divisions were "segregated" and regulated by the Financial Services Authority, adding that Butlers supplied councils with creditratings of institutions, rather than advising on individual transactions.

Several councils claim they were not warned early enough about the vulnerability of the banks, despite Butlers being contracted to evaluate and monitor their creditworthiness.

Credit agencies began downgrading the banks in February 2008. In April, Fitch put the three banks on negative rating watch. Their ratings were downgraded in May, September and October.

An inquiry by the accountants PricewaterhouseCoopers at Tory-controlled Kent County Council found that Butlers had only warned Kent about the banks on 30 September, the same day the Icelandic government took control of the country's third largest bank, Glitnir.

PwC's report quoted KCC saying Kent did not employ specialist treasury staff and relied on the expertise of Butlers: "We are surprised and disappointed that despite meeting with senior managers on September 29, the advisers did not raise any concerns about the situation in Iceland." An email on 30 September notifying the council of the situation was sent to a junior staff member and was not read in time – Kent sank a further £3m into Landsbanki's UK subsidiary, Heritable.

The investment is a fraction of the £1.2bn of public money trapped in Iceland. Transport for London had £40m invested and the Metropolitan Police Authority had £30m, including £20m invested on 23 September. Overall, police authorities had £92m invested and universities £77m but the biggest losers were councils.

The Independent's research shows that 35 per cent of councils advised by Butlers lost money in Iceland, compared with one in five that employed other advisers. The investments of councils advised by Sector Treasury Services accounted for £313m of frozen council funds. About half of all UK councils use the services of the company, which is part of the Capita group.

The 40 local authority clients with Arlingclose lost no money because the company had been warning against investing in Iceland since May 2006. "There were plenty of signs that things weren't adding up," the company director, Mark Horsfield, said.

ICAP said that Butlers had advised local authorities on the "structure and organisation" of their investments: "The decision as to with which institution to place funds was made by each local authority."

The scale of Butlers' involvement in the crisis will embarrass the Tories, who control many of the affected councils. It is also a blow for Mr Spencer, the chief executive of ICAP who holds a 20 per cent stake in the listed company.



UK LOCAL AUTHORITY INVESTMENTS IN ICELAND*

*Collapsed Icelandic banks Kaupthing, Glitnir, Landsbanki and their UK subsidiaries

Total number of UK councils: 468

Total UK council investments in Icelandic banks: £885.3m

The Independent’s figures include UK district, borough, metropolitan, unitary and county councils. They exclude fire, police, and transport authorities

Butlers

Claims to advise 144 UK councils: 31 per cent of total

Number with investments in Icelandic banks: 51

Proportion of total UK council exposure to Iceland: 53 per cent

Scotland £22.5m, Wales £0, England £447m

TOTAL: £469.5m

Sector Treasury Services

Claims to advise 250 UK councils: 53 per cent of total

Number with investments in Icelandic banks: 46

Percentage of total UK council exposure to Iceland: 35 per cent

Scotland £23m, Wales £49.7m, England £240.4m

TOTAL: £313.5m

Sterling Consultancy Services

Will not disclose number of UK councils it advises

Number with investments in Icelandic banks: 3

Percentage of total UK council exposure to Iceland: 2 per cent

Scotland £3.7m, Wales £0, England £13.5m

TOTAL: £17.2m

No external advisor

Number of UK councils without advisors: at least 16

Number with investments in Icelandic banks: 16

Percentage of total UK council exposure to Iceland: 1 per cent

Scotland £0, Wales £0, England £13m

TOTAL: £13m

Arlingclose

Claims to advise 40 (now 50 after Icelandic collapse) UK councils: 9 per cent

Percentage of total UK council exposure to Iceland: 0

Number with investments in Icelandic banks: 0**

TOTAL: £0

**Arlingclose has taken on several local authorities with Icelandic investments; none of these investments was made while it was advisor

Note: Rhondda Cynon Taff (£3m) and Doncaster (£3m) failed to respond

Top 10 council investors in Icelandic banks

Council (Political control); Investments; Advisor; Brokers

1. Kent (Con); £50.3m; Butlers; ICAP, Martins, Tullett Prebon, Garban
2. Nottingham (Lab); £41.6m; Butlers; City Deposit, Martins, Sterling
3. Haringey (Lab); £37m; Sector; Martins, Tullett Prebon, Sterling
4. Norfolk (Con); £32.5m; Butlers; ICAP, Sterling
5. Dorset (Con); £28.1m; Butlers; ICAP, Tullett Prebon, Tradition
6. Hertfordshire (Con); £28m; Butlers; ICAP, Martins, Tullett Prebon, Sterling, Tradition
7. Barnet (Con); £27.4m; Butlers; ICAP
8. Somerset (No overall control); £25m; No advisor; ICAP, Sterling, Tradition, Tullett Prebon
9. Northumberland (No overall control); £23m; Sector; ICAP, Martins, Tullett Prebon
10 Surrey (Con); £20m; Butlers; Martins, Stirling, Tradition, Tullett Prebon

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmReview: A week late, Secret Cinema arrives as interactive screening goes Back to the Future
News
Chancellor George Osborne, along with the Prime Minister, have been 'complacently claiming the economy is now fixed', according to shadow Chancellor Ed Balls
i100... which is awkward, because he is their boss, after all
Travel
travel
Arts and Entertainment
Sydney and Melbourne are locked in a row over giant milk crates
artCultural relations between Sydney and Melbourne soured by row over milk crate art instillation
Arts and Entertainment
Adèle Exarchopoulos and Léa Seydoux play teeneage lovers in the French erotic drama 'Blue Is The Warmest Colour' - The survey found four times as many women admitting to same-sex experiences than 20 years ago
filmBlue Is The Warmest Colour, Bojack Horseman and Hobbit on the way
Arts and Entertainment
Preparations begin for Edinburgh Festival 2014
Edinburgh festivalAll the best shows to see at Edinburgh this year
News
Two giraffes pictured on Garsfontein Road, Centurion, South Africa.
i100
News
Kenny Ireland, pictured in 2010.
peopleBenidorm, actor was just 68
Environment
View from the Llanberis Track to the mountain lake Llyn
Du’r Arddu
environmentA large chunk of Mount Snowdon, in north Wales, is up for sale
News
i100
Arts and Entertainment
arts + ents
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Offshore Wind Package Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Organisation: T...

Subsea Cables Installation Project Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Subsea Cables Installation Project Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Head of Offshore Operations & Interfaces

£60000 - £70000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Day In a Page

Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices