Today’s
Mail on Sunday carries a transcript of a telephone conversation between Alistair Darling and Iceland’s finance minister, Arni Mathiesen, on 7 October, the day it became clear that the Icelandic bank, Landsbanki, was about to fail, potentially taking with it some £4.5 billion deposited by British customers in its UK offshoot, Icesave.
The transcript’s publication will come as a huge embarrassment to the Government, since it reveals that Darling had spoken personally to the Icelandic trade minister, some months or weeks previously, about “the London banking position” of Landsbanki and had been told that “there was nothing to worry about”.
However, a concerned Darling is recorded telling Mathiesen:
“I know you were not at the meeting and weren’t part of it. We doubted what we were being told then and I am afraid we were right.”
On 8 October, Darling appeared on the Today programme and announced that the Government would guarantee the funds of all UK depositors in Icesave. Much to the indignation of the Icelandic government, anti-terrorism legislation was used to freeze the bank’s UK assets.
It quickly became apparent, however, that only retail depositors were to be protected by the Government guarantee. Local authorities, universities and other public institutions with funds in Icesave remained at risk.
On the afternoon of 8 October, Darling made an emergency statement to the House of Commons, during the course of which he was quizzed by MPs about the position of local authorities. His reply was not encouraging:
“The hon. Gentleman (Vincent Cable) asked about the Icelandic banks, and the hon. Member for Tatton (Mr. Osborne), who speaks for the Conservatives, also raised the question of councils. What we can do is make sure that we look after the retail depositors—the ordinary men and women who put in their money, and might not have fully appreciated that Icesave is a branch of a foreign bank and not incorporated in the UK. I understand the position of local authorities, but they are in a slightly different situation, in that they are a more informed investor.”
The “informed investor” tag stung local authorities, suggesting, as it did, that they had been reckless with council taxpayers’ money.
The importance of the Mail’s transcript of Darling’s conversation with Mathiesen is that it makes it clear that the Treasury had doubts about the assurances given by the Icelandic government several weeks before Landsbanki failed. Notwithstanding, it appears to have taken no action to secure the position of British depositors until after Landsbanki had failed.
A Treasury source quoted by the Mail seeks to justify Darling’s apparent inaction:
“It was not necessarily the case that the Icelandic banks were going to go under at that stage but if Alistair had gone public on this earlier, it would have led to a collapse of the banks.”
That may be the case, but the fact is that local authorities were still investing taxpayers’ money in Icelandic banks long after Darling’s doubts arose.
Plaid Cymru-controlled Caerphilly deposited £15 million with two Icelandic institutions, Heritable and Landsbanki, between 11 July and 15 September. The council’s leader, Lindsay Whittle, was heavily criticised by a Labour councillor, Ray Davies, for making the investments when other councils had been withdrawing deposits from Icelandic banks.
In response, Mr Whittle protested, rather lamely:
“People have been in touch suggesting it is my fault that the council’s money is at risk. I think that is totally unfair. The first I knew that we had money invested in Icelandic banks was on Wednesday morning when the chief executive came into my office to tell me.”
Local Labour politicians, however, seized upon Mr Whittle’s apparent ineptitude with glee. As recently as last Wednesday, in Welsh Questions, the Islwyn MP, Don Touhig, raised the issue with Welsh Secretary Paul Murphy:
Mr. Don Touhig (Islwyn) (Lab/Co-op): Iceland is the 10th most prosperous economy in the world and Wales should follow its example—that was the advice given by nationalist Assembly Member Helen Mary Jones earlier this year. Unfortunately, the nationalists who run my council listened to her and put £15 million into Icelandic banks. Now unsure whether they are going to get the money back, they have to raid balances for £11 million to deliver Labour’s promise on equal pay. What advice has my right hon. Friend got for my constituents in those circumstances?
Mr. Murphy: My advice is that they should vote Labour.
All good Commons knockabout and all good, clean fun. However, the Darling telephone transcript casts Caerphilly’s investment decisions, and those of other public authorities, in a wholly different light.
Vince Cable has called for a Commons statement tomorrow. It will be interesting to see if Darling will, indeed, come to the dispatch box and, if so, to hear what he has to say – particularly on the question of just how “informed” local authorities were.
