Council's Icelandic bank deposits. Can we really just blame Prescott?
The big local government story remains the vast sums deposited by Councils in Icelandic banks. Is it credible simply to blame the Government because Councils were following their guidelines? In 2004 John Prescott told Councils they could invest with foreign banks if they had branches in the UK. There was vague advice about "to seek the highest rate of return consistent with proper levels of security and liquidity." But this wasn't an instruction. It was a guideline. Since when did anyone think advice from John Prescott was worth following? If Councils are less craven about following Government guidelines in future then some good will have come out of this mess.
Tory MEP Dan Hannan says:
"Some of my local authorities have lost tens of millions of pounds. But my blood boils when I read the reports offered by their jobsworth accountants telling councillors that all would be well, because they 'adhered to the treasury management practices set out in the CIFPA Code'. No risk, then, No need to apply common sense."
The Daily Telegraph reports this morning:
"Winchester City Council, which is Conservative-run, sank funds into Heritable, a subsidiary of the troubled Landsbanki bank, only hours after the collapse of Lehman Brothers - the event which triggered the stock market melt-down which led directly to the collapse of the Icelandic financial system, three weeks ago.
Other local authorities are also thought to have continued investing in Iceland in recent weeks, despite warnings from leading financial and political experts.
Winchester's actions emerged after Lord Oakeshott, the Liberal Democrat Treasury spokesman, clashed with Paul Coen, chief executive of the Local Government Association, accusing councils of being reckless with taxpayers' money.
During heated exchanges on Radio 4's Today Programme, Mr Coen insisted that councils had abided by Government guidance.
But Lord Oakeshott said: 'Councils who have put money in Iceland banks last week, like Winchester who put £1m in a subsidiary of Landsbanki only a month ago, they must have been blind and deaf.'
But thus far the Councils involved have robustly defended their actions. For example Cllr Paul Carter, leader of Kent, told The Politics Show at the weekend:
"Six months ago, the credit ratings of those banks were good and I think if you looked at the credit ratings of the other 31 banks that we’re investing our money in, credit ratings were good. Every quarter, our officers meet with our consultants to look at the credit ratings supplied by the three biggest financial advisers in that market to determine our investment policy over a year."