By Simon Basketter
Downloading PDF. Please wait... Issue 2123

Iceland bank failures burn council fingers

This article is over 13 years, 3 months old
The collapse of the Icelandic banking system last week will have a devastating effect on thousands of council workers’ wages and pensions
Issue 2123

The drive of the market into public services and the ongoing economic turmoil has opened up the prospect of council workers across the country not being paid at the end of the month.

Up to 50 local authorities relied on cash they put in the wrecked Icelandic banking system to pay their workers’ wages.

More than 100 British councils had money in Icelandic financial institutions which went into meltdown last week, leading to the banks’ nationalisation and the freezing of all deposits there.

For instance, Braintree council in Essex invested £230,000 in three Icelandic banks that then failed. It wanted to use the money for wages.

Haringey in north London is believed to be among the councils that have frozen their payrolls. With incredible insight, Haringey made a £5 million investment in Iceland last week – after the Icelandic bank Glitnir had already gone bust!

Haringey trades council organised a meeting to oppose any cuts on Monday of this week.

Keith Flett, chair of the trades council, said, “Just as the crisis nationally is the end of New Labour’s love affair with market capitalism, so locally it underlines the folly of New Labour politics.

“It was financially irresponsible to invest money in a high interest, and hence by definition high risk, financial vehicle. The key thing is to make sure that ordinary people in Haringey don’t suffer.”


Even if the money for wages is reclaimed from banks in Iceland, the consequences for council services are stark.

Aberdeen council has a £130 million public-private partnership to build and refurbish ten schools in the city. This is at risk because of the Icelandic crash.

None of the councils that lost money last week have ruled out cuts in services.

The effect will go far beyond those councils with money disappearing in Iceland. Between a quarter and a third of spending on public services is tied up in private business.

For all the claims that contracting out public services transfers risk to the private sector, the reality is that the public sector carries the ultimate risk.

Instead of building houses and providing services, councils have privatised PFI contracts on one hand and speculated with workers’ pensions on the other.

Strathclyde Pension Fund, which is worth £9 billion, has admitted that it has been caught out by the financial crisis

It had or has holdings in HBOS, Lehman Brothers, Freddie Mac, Fannie Mae and insurer AIG – all of which have either collapsed or been nationalised in the last few weeks.

The fund has 180,000 members covering Strathclyde regional council and Glasgow City Council. It already had a £1.4 billion deficit in June this year.

Local authority pension funds in Lothians and Northern Ireland are attempting to sue Lehman brothers to get back money they lost in its collapse. The Lothian Pension Fund in Scotland says it has lost £1.9 million.

Workers have already begun to mobilise against the threat to pay, jobs and services.

Richard Buckwell of Notts TUC said, “A lively protest of 30 people on Monday in Nottingham called on the government to guarantee the £42 million the council has invested in Iceland banks.

“There were a number of union banners on the protest from across the region, as many of the region’s councils are affected.”

Council workers need to be prepared to walk out immediately if wages go unpaid.

Councils should bring an immediate halt to all privatisation and outsourcing projects. There should no more gambling on PFI hospitals or academies.

Council workers should demand to see where all council money is invested. And the government should guarantee the wages and pensions of every council worker.

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