Icelandic bank debt – Cambridge City Council recovers a very high percentage of the original sum

07:27 Thursday 27th November 2014
BBC Radio Cambridgeshire

DOTTY MCLEOD: Nearly £5 million has been restored to the coffers of Cambridge City Council. It’s part of the £9 million that was lost in the collapse of the Icelandic banks in October 2008. The City Council has been working over the past six years to get it back, and has now sold part of the debt. Lewis Herbert is the Labour Leader of Cambridge City Council. So Lewis, explain exactly how this deal has worked to get the money back.
LEWIS HERBERT: Well we’ve been working hard to get money back from the £9 million as you say. 2008, invested because it was getting a high interest rate, an over-big risk by the then council, because that was a large proportion of our reserves. Two halves: half of it is in England, half of it is in Iceland. Increasing risks in Iceland, and all of the local authorities nearly, and all of the Dutch local authorities have basically been doing a deal whereby people who want Icelandic krona, we’ve got very little use for them, and want to have this particular financial opportunity to recover the money themselves, want to pay us a reasonable amount of money for that. So basically they pay us a very high percentage of our original sum, including for the interest that was due on this money, and we get the money back. And then we can invest it much better, because this money basically Dotty has been frozen for six years. In that period of time that money should have returned 40% or 50% return on top of the £9 million.
DOTTY MCLEOD: So why is it that you can’t get back all of the money?

LEWIS HERBERT: Well we were never going to get back all of the money. Sadly that wasn’t going to be the case. There is a risk involved here, and the local authorities who made a bad call originally, because at that stage Cambridgeshire is one of about 100 local authorities investing in overseas accounts simply because there was a premium interest rate, have effectively taken the decision and been given strong financial advice that they should recover the money. There has been talk just in the last few weeks that Iceland politicians are thinking about imposing a big tax on the repayments of overseas money. We’re just making a judgment, and the judgment is part of looking at all of our reserves. The Council isn’t poor on reserves. What’s important is that we’re actually making some money out of them. So the judgement Dotty is that we will make more money getting the money back, and then we can reinvest it, invest it in funds that will actually get money back to Cambridge residents.
DOTTY MCLEOD: So that’s what you’re going to do with this money now. You are going to invest it. It’s not going to go on services.
LEWIS HERBERT: It’s definitely not. No. The new Labour council, a new broom on finance, we’re looking at all of the investments that the Council has got. The budget that we will announce in January will shake up the Council’s finances. That money really has to be made to work. So if we can get 5% return on the Council’s reserves, that will protect front line services, and also protect us because we’ve got £6 million in Government grants, so we are determined that the Council will protect services, and we’ll put this money to good use.
DOTTY MCLEOD: Lewis, thanks for joining us this morning to explain that. It is a little bit complicated, isn’t it? That’s Lewis Herbert who is the Labour Leader of Cambridge City Council. Now Peterborough City Council also had an investment with the Icelandic banks, though much smaller. They’ve told us that they are continuing to try and get back the full amount invested in them. It’s an ongoing process they say. So far they’ve received 94% of the £1 million investment into Landsbanki, and 84% of the investment into Kaupthing bank, and they say but those figures should be increasing as discussions continue.