Several councils could be unable to pay their staff at the end of this month, it was reported yesterday.
A significant number of local authorities relied on cash tied up in the doomed Icelandic banking system to pay wages, a source told the Independent.
More than 100 British councils had money in Icelandic financial institutions, which offered attractive interest rates but have now frozen all deposits due to the collapse in the country’s banking system.
Public sector union Unison has written to all councils involved to ask how much money they risk losing, what the consequences would be, and whether wages are safe.
A union spokeswoman told Personnel Today this morning: “We want to know whether they invested payroll money in Icelandic banks to get short-term interest.
“Whatever the councils say, there are bound to be consequences if this money is lost, and we are worried about them cutting services and jobs.”
Braintree Council in Essex is said to have invested £230,000 in annual interest from taxpayers’ money in three failed Icelandic banks to spend on payroll and services.
The Local Government Association said last week that while the situation was generally not a threat to frontline services, “a small number of authorities may have specific problems”.