UK Government refuses to rescue councils caught in Iceland bank collapse

by Dave Keating | October 9, 2008 at 03:12 am

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The UK's consumer savings protection laws will be put to the test for the first time after the colapse of Iceland's Landsbanki, which had banking outlets in the UK under the name ICEsave. However it has emerged today that although individual consumers' savings will be reimbursed, money deposited by government entitites such as local councils (like municipal town halls in the US) will not be reimbursed.

London authorities will not be reimbursed for the loss of £200 million of taxpayers' cash in the collapse of Iceland's Landsbanki, Treasury sources have revealed.

Eight town halls, Transport for London and the Metropolitan Police Authority have been left out of pocket after their investments in the bank were lost.

Urgent talks are likely to be held between Treasury officials and council chiefs to explore ways of easing the burden in the short term, but Chancellor Alistair Darling is resolute that he cannot give 100 per cent compensation to local authorities.

Mr Darling yesterday announced he was guaranteeing every penny invested by individuals in Icesave, the online banking arm of Landsbanki, after it went under in the credit crunch.

But a Treasury spokesman told the Standard that similar help would not be offered to councils.