Spelman condemns loss of £200 million of local taxpayers' money

Caroline Spelman, the Shadow Communities and Local Government Secretary, has stressed it is “unacceptable” that local taxpayers will lose £200 million as a result of the Icelandic banking meltdown.

She warned that the loss will “ultimately feed through to higher council tax or less investment in frontline services.”

And she condemned the series of regulatory failures that led to town halls investing almost £1 billion of local taxpayers’ money in Icelandic banks:

• Ministers and the Financial Services Authority knew the risks but said nothing - the FSA knew about the risks in Icelandic banks at the beginning of 2008 and informed both the Treasury and the Bank of England, but failed to inform the Department for Communities and Local Government and the Audit Commission
• Audit Commission inaction - the Audit Commission has admitted that it did not consider it their job to provide any advice to local authorities on investments and that they failed to liaise with the Financial Services Authority
• Prescott ’s town hall guidance - The Government’s guidance to local authorities (originally issued in 2004 by John Prescott) relies overly on credit ratings, rather than also obtaining professional treasury management advice

Caroline said, “It is a scandal that the Financial Services Authority and the Treasury knew that Icelandic banks were risky, but sat on their hands and kept quiet. Labour Ministers must take personal responsibility for this public policy mistake, given they created a flawed regulatory system and said nothing.”