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

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
2015 General Election
May2015

Poll of Polls

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

Recruitment Genius: Graduate / Junior Software Developer

£24000 - £30000 per annum: Recruitment Genius: A Graduate/Junior Software Deve...

Recruitment Genius: Retail Store Sales Executive

£15000 - £20000 per annum: Recruitment Genius: An experienced Sales Executive ...

Recruitment Genius: Night Porters - Seasonal Placement

Negotiable: Recruitment Genius: Night Porters are required to join a family-ow...

Recruitment Genius: Media Sales Executives - B2B

£20000 - £50000 per annum: Recruitment Genius: Recruitment Genius Ltd continue...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn