Conservative Kent County Council Accused of 'Negligence' (Tunbridge Wells Liberal Democrats)

Conservative Kent County Council Accused of 'Negligence'

March 27, 2009 12:22 PM

Liberal Democrats outside Kent County Council

Seven English councils including Conservative Kent County County have been accused of "negligence" for putting money into Icelandic banks days before they went bust last October.

The authorities paid nearly £33m into the banks just before they collapsed despite warnings about their solvency. The fate of the £954m deposited by more than 100 councils and other public bodies in Icelandic banks remains uncertain.

The Audit Commission said most councils had "heeded warnings" about the declining credit worthiness of Icelandic banks during 2008 and taken action accordingly. However, it said that some had not done this while a handful had behaved "negligently".

It reserves particular criticism for institutions which continued to deposit money after 30 September, when the credit ratings of Glitnir and Landsbanki were downgraded to "adequate" - below that deemed acceptable under guidance to town halls. Just over a week later, the two banks went under. According to the commission, the South Yorkshire Pensions Authority deposited £10m on 2 October while Kent County Council made two deposits totalling £8.3m on 1 and 2 October. Other councils which made deposits during the period in question were: North East Lincolnshire Council, Redcar and Cleveland Borough Council, Restormel Borough Council, the London Borough of Havering and Bridgnorth District Council. Alleged mistakes by authorities included the failure, by one, to open an e-mail notifying it of the ratings change, use of obsolete information and exceeding limits for deposits in a single bank.

"Undoubtedly some mistakes were made especially by the seven authorities which continued to invest money in Iceland at the end of September," said Commission chief executive Steve Bundred. "By the end of the September the Icelandic banks had been downgraded and it was known that the credit ratings agencies were issuing warnings. It was known that the Icelandic banking system was in crisis." Training for council executives which manage investments should be improved, the Commission says, while it believes government guidance puts "undue reliance" on the opinions of credit agencies and they should take into account other information.

The Local Government Association, which represents 300 councils in England and Wales, said councils which deposited money after 30 September had carried out reviews as to why this took place. It stressed that three out of four English councils had no money tied up in Icelandic banks while the total amount of deposits halved between January and October 2008. "There is no doubt we must learn the lessons," said chief executive John Ransford, adding that councils' banking policies would be more "cautious and measured" in future.

Kent County Council said it had been open about its conduct, admitting it had mistakenly made a £3.3m deposit on 1 October.

Investments by councils and public bodies do not have the same protection as individual deposits, guaranteed by British ministers after the meltdown of Iceland's banking system. Although the overall amount of money at risk accounts for just 3% of councils' total cash reserves, 18 authorities have more tied up in Icelandic banks than in their own reserves. It is still hoped that much of the money will be recovered. Administrators for Heritable, the UK arm of Landsbanki and UK-based Kaupthing, Singer and Friedlander have indicated the banks may have sufficient assets to cover the bulk of liabilities. Officials from the Treasury and the Icelandic government have held a series of meetings to try and resolve the crisis after it led to a short-lived diplomatic spat last autumn.

Tunbridge Wells Lib Dem Group Leader David Neve asks "Due to KCC's alleged "negligence", are parties now less willing to lend to KCC in the market, has KCC's cost of funds increased and will the council tax payer ultimately have to pay for the cost?"

Source: BBC

Tunbridge Wells Liberal Democrats