Crisis 'won't impact on services'

Councils and other public bodies with a total of more than £1 billion invested in Iceland's stricken banks should be able to weather the storm, the Local Government Association (LGA) has insisted.

Ed Welsh, of the LGA, told GMTV that the money was in the foreign banks to earn interest rather than to be used for current expenditure so the crisis was unlikely to cause immediate problems.

He said: "We are hopeful this will not have an impact on frontline services. In the long term, there may be an issue but it means deferring payment or tightening our belts."

Councils may have millions of pounds invested in other foreign banks as well, he admitted, as they have been spreading their risk by putting money in many different financial institutions at home and abroad.

Prime Minister Gordon Brown has hit out at the Icelandic government for its "totally unacceptable" response to the folding of institutions like Landsbanki and Glitnir.

Threatening legal action, he insisted it was the responsibility of Iceland's authorities to reimburse UK investors who stood to lose their deposits.

While private individuals have been assured they will be reimbursed for their losses by the Government, ministers are refusing to say the same for public authorities.

Mr Brown called for a "global solution" to the world financial crisis, which so far shows no sign of abating despite radical moves by governments to improve liquidity.

In an article for The Times, the premier called on other countries to follow Britain's lead in injecting billions of pounds into ailing banks. He also called for new cross-border rules on transparency and new standards of conduct to end irresponsible risk-taking.

His comments will be echoed by Chancellor Alistair Darling, who is in Washington for talks with other finance ministers from the leading G7 industrialised nations. On Friday, Mr Darling will be attending the annual meeting of the International Monetary Fund.