UK taxpayers get burned for £1bn in land of fire and ice

HUNDREDS of building projects across Scotland could be under threat after eight councils were dragged into the financial turmoil caused by the collapse of the Icelandic banking system.

About £1 billion of UK taxpayers' money held in Icelandic banks including Lansbanki, Heritable and Glitnir, for almost 100 British authorities, could be lost, including £45.5 million for Scottish councils.

The UK government has refused to produce a bail-out package for any councils, meaning they risk losing money.

Instead, Westminster has started freezing Icelandic assets in Britain and has threatened to take legal action against the country's government.

The Icelandic prime minister, Geir Haarde, was shocked when he realised Britain had used anti-terror laws against one of his banks. The laws give powers to freeze foreign assets.

But Gordon Brown, the Prime Minister, last night described the behaviour of the Icelandic government following the bank collapses as "totally unacceptable".

The crisis comes at a time when Scottish councils are already feeling the pinch, with Aberdeen alone having to cut £70 million from its budget and high-profile cuts to services in Glasgow, Fife and Edinburgh.

The worst-hit in Scotland is North Ayrshire with £15 million; followed by Scottish Borders (£10 million); South Lanarkshire (£7.5 million); South Ayrshire (£5 million); East Ayrshire (between £3 million and £5 million); Moray (£2 million); and Perth and Kinross (£1 million).

A £120 million new schools project for an eighth Scottish council, Aberdeen, is also under threat because it was being financed by an Icelandic bank.

The money is thought to have been cash held as reserves and for projects such as road repairs, leisure facilities and new schools.

But the problems in Scotland have been dwarfed by the exposure faced by some councils and police authorities in England. Kent County Council had £50 million in Icelandic banks, Nottingham £40 million, Transport for London £40 million and the Metropolitan Police service £30 million.

The turmoil came after the Icelandic government stopped trading in three banks because share prices had collapsed, and froze their accounts to stop them going out of business.

The country, which has a population of just 320,000, has had a burgeoning banking sector, allegedly partly fuelled by money laundered from the Russian economy. But it has been in no position to withstand the crisis that has gripped the banking sector across the world.

There was confusion last night over who Scottish councils should turn to.

The Scottish Government has responsibility for local government finance north of the Border, but insisted help should come from the Treasury.

A Scottish Government spokesman said: "Finance secretary John Swinney wrote to the Chancellor this morning to seek specific reassurance from the UK government that all deposits by local authorities in all banks, both in the UK and elsewhere, are afforded the same protection as safeguards the UK government put in place yesterday (for individual savers]."

The SNP's Westminster finance spokesman, Angus Robertson, said: "The Prime Minister and the Chancellor must accept that local authority investments must also be protected in addition to individual savers."

The Conservatives blamed the government for advising authorities to invest in Iceland.

A joint statement from the government and the Local Government Association, which covers councils in England and Wales, accepted local authorities had not acted recklessly.

The government would look at every claim from councils on a "case by case" basis, but there were no promises made that the money would be repaid, the statement said.

A source close to the Scottish Secretary said a meeting should take place between Cosla and the Scottish Government to see what help could be given to local authorities.

IN NUMBERS

INVESTMENTS IN ICELAND
SCOTTISH COUNCILS:

North Ayrshire £15m
Borders £10m
South Lanarkshire £7.5m
South Ayrshire £5m
East Ayrshire £3-5m
Moray £2m
Perth & Kinross £1m
TOTAL £45.5m

TOP ENGLISH AND WELSH COUNCILS:

Kent £50m
Nottingham £42m
Haringey £37m
Norfolk £32.5m
Dorset £28.1m
TOTAL £742m

OTHER BODIES:

Police Association £96m
Transport for London £40m
John Moores University and St Helens College £7.5m

GRAND TOTAL £930 million

Bank's collapse hits schools plan
ONE of Scotland's most ambitious school building schemes was thrown into chaos yesterday after it was revealed the £120 million project is being fully funded by a collapsed Icelandic bank.

Aberdeen City Council, already facing budget cuts of £50 million, signed a deal last December with a consortium of Icelandic, Danish and British companies to spearhead a huge schools regeneration scheme.

It was confirmed yesterday that the consortium behind the private public partnership scheme had signed a deal with Landsbanki – nationalised by Iceland's government this week.

SNP case for independence dealt double blow as 'arc of prosperity' falters
IF THE fate of Iceland has not been enough to have Alex Salmond crying in his curry, you have to admire the First Minister's strength of character.

The news from Iceland has been a catastrophe for those who believe in an independent Scotland as a serious viable entity. For starters, there is the situation with Scottish councils, which have more than £35 million tied up in Iceland's now frozen banks. Mr Salmond's immediate reaction was to demand Westminster bails them out – hardly a Scottish solution to a Scottish problem.

The Scottish Government argues financial regulation is a reserved matter so it can ask Westminster to take action.

However, local government finance is fully devolved, so there is also a strong case that the Scottish Government should be riding to the rescue.

The second blow is that Iceland was part of what the SNP called the "arc of prosperity" on which Scotland should be modelled.

Supporters of the Union point out that the events of the past few weeks have revealed small countries are in no position to withstand global financial disasters.

The question many are asking is: could Scotland have saved its banks where Iceland failed without outside help? The answer for the vast majority is no.