Iceland banking losses reach £1bn

The true cost to British councils and other institutions of the financial collapse of Iceland, which has seen the tiny nation driven to the verge of bankruptcy, has been estimated at up to £1bn of investments.

Savings held by more than 100 local councils, including Kent County Council which has lost £50m, at Icelandic banks are believed to add up to almost £800m. The investment capital has just disappeared as banks such as Landsbanki and Kaupthing have run out of money with no guarantees that investors will be compensated for their losses.

Transport, police and fire authorities had also invested in the banks, which often had internet arms that offered high levels of interest. One such body was Transport for London, which had a £40m deposit with Kaupthing's UK arm. Some charitable organisations such as hospices are also believed to have lost money in the bank crash too.

The UK Government has yet to offer these organisations the blanket guarantee of full compensation that it has extended to individual savers, but said yesterday in a joint statement with the Local Government Association "that authorities facing severe short-term difficulties" will be assisted in an "appropriate set of ways. We will judge what's appropriate on a case by case basis."

Prime Minister Gordon Brown last night called Iceland's failure to guarantee British savings as "unacceptable and illegal", and he is reported to be seeking to sue the nation's government if no relief is forthcoming.