Government seizes £4bn assets

2:14pm Sunday 12th October 2008

The Government has seized more than enough Icelandic assets to pay back British savers caught up in the country's banking collapse, it was revealed.

Some £4bn is understood to have been frozen using anti-terror laws last week, compared to the estimated £3bn that UK councils, charities and individuals stand to lose.

Treasury Chief Secretary Yvette Cooper insisted the assets would not be released until a deal had been struck with Iceland's authorities to return British money.

Asked if they could be sold in order to recover the investments, Ms Cooper told BBC1's Andrew Marr Show: "I think we need to have a proper process for doing this and that is why we sent a team over to Iceland on Friday in order to talk to the Iceland authorities about how that money can get back to the people whose money it really is.

"These discussions are under way at the moment and that is why we have frozen assets in the meantime until we know how people are going to get their money back."

The scale of the assets frozen emerged amid fears that the banking collapse may mean some councils cannot pay their staff this month.

Most of the estimated £1bn invested in Iceland by local authorities was capital, but according to the Independent on Sunday a handful deposited revenue budgets - which include payroll - in order to earn interest.

But an LGA spokeswoman stressed that all councils held reserves, and it was "highly unlikely" there would be any impact. "We are not aware of any councils which have immediate cashflow problems in terms of services or paying staff," she said.

The LGA is urging the Government to relax capitalisation rules for hard-hit councils and allow them to delay payments of business tax rates if necessary.

The Treasury delegation conducting negotiations in Iceland released a statement last night saying "significant progress" had been made. A deal has already been done in principle over an "accelerated" payment for small UK depositors, according to the statement. However, the situation with larger investors has yet to be resolved.

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