Councils’ Iceland cash gamble could lead to training and welfare cuts

Local government authorities may be forced to move funds from training and employee welfare to cover salaries following the fallout from the banking collapse in Iceland, experts have warned.

Jim Savege, lead on pay for the Public Sector People Managers Association, told Personnel Today that while councils will be able to pay staff wages, this may come at a cost to other initiatives such as training.

“There is no indication of councils having salary problems, but inevitably, with almost £1bn lost, there will be some short-term implications,” Savege said. “It will vary from authority to authority, and while many of them have reserves, there is a question as to whether they will suffice.

“The public sector has been affected by the credit crunch as much as the private sector, and many HR directors will have to look at this year’s budget to see what services they provide, what standard they can afford to provide them at, and make appropriate changes.”

The Local Government Association said that 13 councils may have “short-term difficulties” as a result of £858.3bn of council cash being tied up in the doomed Icelandic banking system. The LGA expects as much as £300bn will be recovered from the frozen UK assets of two Icelandic banks.

Earlier this week, the government unveiled a ‘rapid response’ unit to provide support for local authorities facing severe short-term difficulties following the failures of Icelandic banks.