Councils should delay business rates payments earmarked for Whitehall this month, to help ease them through the Icelandic banking crisis, local government leaders have warned. The LGA, supported by authorities with bank deposits frozen in defunct Icelandic accounts, were due to put the proposal toTreasury and local government ministers at a crisis meeting in Whitehall on 15 October. LGA officials want ministers to allow troubled councils to retain, for a short period, business rates payments due to be paid to the Government on 20 October. Some councils are reportedly facing immediate problems covering services and wages, although the LGA said no council had yet reported problems. An LGA spokesman said: ‘Retaining business rates seems like a logical way to ease councils through short-term problems – we're merely calling for these payments to be delayed.' But a senior Whitehall source said ministers were ‘likely to reject' the idea, and were instead poised to offer ‘other flexible forms of support'. Councils could be granted capitalisation permissions, allowing them to borrow against, or sell, assets. Ministers are believed to favour council borrowing because delaying business rate payments would deprive Whitehall of cash, when central government borrowing has ballooned, following the Treasury's £37bn part-nationalisation of the banking sector. A spokeswoman for Unison, representing 1.2m local government staff, warned the crisis should not impact on staff. General secretary, Dave Prentis, said: ‘Local authorities have a crucial role to play in protecting individuals, families and communities from the effects of an economic downturn. They are also crucial to rebuilding stability and confidence in our communities.' Kent CC, the authority with the highest deposits in Icelandic banks (£50m), has written to chancellor, Alistair Darling, and local government leaders, urging them to promote repatriation of at least £5bn in council deposits abroad. ‘Until this week, the perceived wisdom – as set out by Government and CIPFA investment principles – was that risk should be diversified, albeit with only the highest-rated organisations,' it said. ‘Given our experience with Icelandic banks, we believe this wisdom can no longer be relied on.' Paul Carter, Kent's leader, told The MJ: ‘The final figure for international deposits will be around £10bn. That would effectively be guaranteed in the UK and… help to reinvigorate the domestic banking sector.' But LGA chairman, Margaret Eaton, said: ‘Withdrawing money from foreign banks is not an action we would recommend. We would be concerned about any large-scale withdrawal from foreign banks until the potential impact of such a move had been properly assessed.' The Government's critical official guidance on investing sent out in 2004 ‘The guidance recommends that priority should be given to security and liquidity. However, that does not mean that authorities should ignore yield. It will be appropriate to seek the highest rate of return consistent with the proper levels of security and liquidity.' Guidance on Local Government Investments issued under Section 15 (1)9a) of the Local Government Act 2003 and sent to chief executives and directors of finance on 12 March 2004 from the Office of the Deputy Prime Minister.
