Councils call for Iceland inquiry

Local councils across Britain are calling for a government inquiry into why credit rating agencies gave Icelandic banks high ratings.

The Local Government Association (LGA), which is spearheading the plan, said the ratings were given up until a matter of days before the banks went into administrations.

The inquiry, which would be run by the Financial Services Authority (FSA), should occur at the same time as councils which continued to invest in Icelandic banks with unacceptable rating conduct their own individual inquiries, the LGA said.

One hundred and sixteen councils are known to have deposits in Icelandic banks, with deposits totalling £858.3 million.

Liberal Democrat communities and local government spokesperson Julia Goldsworthy said: "While councils have a right to question whether some of the advice given by credit ratings agencies may have been flawed or inconsistent, those councils that have made poor judgements cannot put all the blame at their doors.

"Some councils, such as Newcastle, were prudent enough to heed the warning signs and withdraw their money from Icelandic banks months ago. However, with such vast sums of taxpayers’ money at stake the government must act to make sure that vital services such as social care do not suffer."

She added: "The top priority must be to actively pursue deposits from Icelandic banks. The government must also ensure that any remaining debts are spread over several years to protect local services from devastating cuts."