Leading article: Local authorities cannot duck their responsibilities

Icelandic insolvencies pose serious questions about council priorities

Share
Related Topics

A crisis in one area – and the threat of global financial meltdown is a crisis on the grand scale – has a habit of shining an unwelcome light into recesses that might otherwise have remained comfortably dark. One such is the unheralded link that has suddenly been exposed between British money and the now near-bankrupt state of Iceland.

First, it emerged that as many as 300,000 Britons had kept savings in Icelandic banks, which turned out to be considerably less safe than houses. We then learned that several publicly funded organisations, such as the Metropolitan Police Authority and Transport for London, as well as a whole clutch of local authorities, had also been tempted by the comparatively high interest rates on offer from Icelandic banks. Their exposure is of the order of at least £938m.

Their plight seems to be worse than that of individual savers. For while they now have a pledge from the Chancellor that they will be reimbursed, and the Government will take on the complicated business of suing Iceland, the local authorities have received no similar assurance.

All this raises serious questions, some of which have answers, and others of which thus far do not. At any one time, local authorities will have money on deposit; there can be no complaints about that. But the sums of money many authorities chose to place in Iceland will look quite substantial, and not only to hard-pressed council tax-payers. As several letter-writers to this newspaper ask today: if they had this much on deposit, why does council tax rise so inexorably and why do councils routinely claim penury in the face of very modest requests? Is the balance between spending and deposits in the interests of the taxpayers?

Given that so many councils, we now discover, kept money in Icelandic accounts, it might also be asked where else they have funds stashed away. What might they have lost on more speculative, market-related investments? We suspect many councils will now be reviewing their holdings. That might look like bolting the stable door, but it would be a sensible thing to do.

Which brings us to some bigger questions. Why did local authorities and others deposit money in Iceland and was that decision reasonable? As one council finance official said yesterday in their defence, the councils followed Treasury advice that surplus money should be invested in such a way as to deliver the highest return for taxpayers. Iceland, as individual savers had also discovered, offered high rates, along with the top, AAA credit rating.

But should councils really be chasing high interest rates abroad, rather than investing less ambitiously, but more visibly, closer to home? And even if this was central government policy, should council treasurers not have transferred funds out of Iceland when questions were first raised about its banks several months ago? Council treasurers, like the bulging ranks of council officials generally, are pretty well paid these days – better paid often than their national counterparts. They now look as naive as the individual, amateur savers. They must accept their responsibility as stewards of the public purse.

Not for the first time, however, another villain of the piece appears to be the whole self-perpetuating system of credit rating. Individual savers and council treasurers alike consoled themselves with the high ratings enjoyed by Icelandic banks. As with Lehman Brothers, though, those ratings turned out to be fatally misleading. This system is now discredited – in every sense of that word.

React Now

iJobs Job Widget
iJobs General

Business Systems Analyst (Retail)

£30000 - £35000 Per Annum Up to 20% bonus: Clearwater People Solutions Ltd: An...

Head of Digital Marketing,London

To £58k Contract 12 months: Charter Selection: Major household name charity se...

Lead Hand - QC

competitive: Progressive Recruitment: Lead Hand - QCProgressive are recruiting...

Technical Manager / Lead - Mechanical.

£43000 - £45000 per annum + competitive: Progressive Recruitment: A leading Br...

Day In a Page

Read Next
 

The daily catch-up: fathers looking after children, World Cup questions and Nostradamus

John Rentoul
 

Letter from the Political Editor: Phone and data laws to be passed in haste

Andrew Grice
A History of the First World War in 100 Moments: Peace without magnanimity - the summit in a railway siding that ended the fighting

A History of the First World War in 100 Moments

Peace without magnanimity - the summit in a railway siding that ended the fighting
Scottish independence: How the Commonwealth Games could swing the vote

Scottish independence: How the Commonwealth Games could swing the vote

In the final part of our series, Chris Green arrives in Glasgow - a host city struggling to keep the politics out of its celebration of sport
Out in the cold: A writer spends a night on the streets and hears the stories of the homeless

A writer spends a night on the streets

Rough sleepers - the homeless, the destitute and the drunk - exist in every city. Will Nicoll meets those whose luck has run out
Striking new stations, high-speed links and (whisper it) better services - the UK's railways are entering a new golden age

UK's railways are entering a new golden age

New stations are opening across the country and our railways appear to be entering an era not seen in Britain since the early 1950s
Conchita Wurst becomes a 'bride' on the Paris catwalk - and proves there is life after Eurovision

Conchita becomes a 'bride' on Paris catwalk

Alexander Fury salutes the Eurovision Song Contest winner's latest triumph
Pétanque World Championship in Marseilles hit by

Pétanque 'world cup' hit by death threats

This year's most acrimonious sporting event took place in France, not Brazil. How did pétanque get so passionate?
Whelks are healthy, versatile and sustainable - so why did we stop eating them in the UK?

Why did we stop eating whelks?

Whelks were the Victorian equivalent of the donor kebab and our stocks are abundant. So why do we now export them all to the Far East?
10 best women's sunglasses

In the shade: 10 best women's sunglasses

From luxury bespoke eyewear to fun festival sunnies, we round up the shades to be seen in this summer
Germany vs Argentina World Cup 2014: Lionel Messi? Javier Mascherano is key for Argentina...

World Cup final: Messi? Mascherano is key for Argentina...

No 10 is always centre of attention but Barça team-mate is just as crucial to finalists’ hopes
Siobhan-Marie O’Connor: Swimmer knows she needs Glasgow joy on road to Rio

Siobhan-Marie O’Connor: Swimmer needs Glasgow joy on road to Rio

18-year-old says this month’s Commonwealth Games are a key staging post in her career before time slips away
The true Gaza back-story that the Israelis aren’t telling this week

The true Gaza back-story that the Israelis aren’t telling this week

A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
A History of the First World War in 100 Moments: The German people demand an end to the fighting

A History of the First World War in 100 Moments

The German people demand an end to the fighting
New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

New play reveals what Oscar Wilde said at trials

For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
Can scientists save the world's sea life from

Can scientists save our sea life?

By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

Richard III review

Martin Freeman’s psychotic monarch is big on mockery but wanting in malice