Sharon Ball

Commenting on the situation facing councils that have money invested in Icelandic banks, Liberal Democrat Shadow Communities and Local Government Secretary, Julia Goldsworthy said: “The first priority has to be that the Government supports councils to recover as much of their money as possible. It must also look at the potential for the capitalisation of any remaining debts to avoid service cuts or immediate Council Tax rises at all costs."

“We need to know the extent of the risk and under what circumstance councils made these commitments. Some councils that deliberately avoided taking these risks should have their prudence acknowledged.

“The real issue here is making sure that front line services like fire and policing, social care and transport are protected.

“The answer isn’t for the Government to guarantee these loans. That would simply pass the buck from local taxpayers to income taxpayers, which would not be much comfort to those already struggling to pay their bills.

“It is ridiculous for the Government to try to wash its hands of this, given that in many cases it is revenues councils were collecting for the Government, such as business rates, which are now at risk. These councils were operating within Treasury guidance.

“The next question is how far the problem will spread. PFI schemes for new schools and hospitals could be under threat.”