‘Rift’ over city’s Icelandic cash

“A WESTMINSTER inquiry has exposed a potential rift between the Local Government Association and Nottingham City Council in what was considered good investment practice in Icelandic banks…

FOR months Nottingham City Council has argued that £42m of taxpayers’ cash was invested in Icelandic banks “in consultation” with the financial firm Butlers – a claim that gave it cover from claims of bad decision making.

But that cover was blown a fortnight ago when a spokesman from the firm told MPs on the Treasury Select Committee that it had passed information to the authority that should have set “alarm bells” ringing in the Council House – warning officials that money was at risk.

Then last week – just as the council was regrouping from the Butlers revelation – a further stinging blow was inadvertently dealt to its argument that it had not acted irresponsibly.

This time the Select Committee was taking evidence from Coun Richard Kemp, the deputy chair of the Local Government Association. He told MPs that councils had been victims of unprecedented global events and that they had been prudent.

But committee member and Notts MP John Mann (Bassetlaw) then asked him: “You said earlier five per cent of assets invested overseas would seem reasonable for any authority…

Mr Mann refined his question. He said: “Let’s take Iceland, then – all in Iceland. What would be a percentage investment in Iceland that would have been unreasonable?” Coun Kemp responded: “Perhaps ten per cent.”

The comment had direct significance to Nottingham, whose £42m investment represented 20% of their overall assets – double the amount Coun Kemp had suggested would be “unreasonable…”

Anne Sibert, professor of economics at Birkbeck University in London, gained intricate knowledge of the Icelandic banking system after she was commissioned to write an economic study for Landsbanki itself…

Prof Sibert explained that she had been commissioned in April to write a confidential report for Landsbanki which showed the Icelandic government did not have enough reserves to prevent a run on the bank.

On her first day’s research, some seven months before the bank’s collapse, she carried out an internet search on the words “Iceland”, “bank” and “credit rating”.

“It took me two minutes to work out what was going on. It’s astonishing that an authority could have been putting so much money over there.”

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