Council losing £27k interest a month (From Wiltshire Times)

Council losing £27k interest a month

11:10am Thursday 23rd October 2008 in Latest News By Victoria Ashford

WILTSHIRE County Council is losing £27,000 a month in interest after £8m of taxpayers’ money was lost when the Icelandic bank it had invested in collapsed.

The figure, confirmed at a Wiltshire County Council cabinet meeting on Tuesday, means the county council is failing to meet its monthly budget, based on the income expected, and might only be able to recoup a third of the £8m invested.

The county council invested the sum with Heritable, a UK subsidiary of the troubled Icelandic bank Landsbanki, three months ago, but earlier this month it was announced that Heritable had gone into administration, leaving doubt as to whether the council would get the £8m back.

Speaking at the cabinet meeting, Sandra Farrington, the council’s chief financial officer, admitted she did not know how long it would take to recover all of their assets.

She said: “We will lose that interest of £27,000 a month. We have said in the report that potentially it will mean that we don’t reach the budget.”

The cabinet was asked to revise investment rules, known as the Treasury Management Strategy, which identifies a lending list where investments can be placed.

It does so by determining the credit rating that an institution must hold before an investment can be made.

Councillors chose to reduce the number of institutions they will put their investments into, opting instead for those with the highest rating and reputation for investments either based in the UK or abroad.

Jane Scott, leader of Wiltshire County Council, said she was confident the council would get back at least a third of the £8m and showed her support for the option chosen by the cabinet.

“I think it’s important that we, as local bodies, lobby so that we don’t get into this position again,” she said.

“We don’t need to go with option two (a risk free approach where investments are only placed in Government facilities), but we do need to, in this more difficult situation, look to a more risk adverse approach that we have to monitor. Who knows what is round the corner?

“We need that interest (from investments) - it’s part of the budget.”

The £8m represents about nine per cent of the council’s investment in short term deposits. The overall revenue and capital budget for teh council is £724m.