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Overseas Bank Accounts

Volume 481: debated on Wednesday 22 October 2008

4. What discussions he has had with the First Minister and ministerial colleagues on deposits made by Welsh local authorities in Icelandic bank accounts; and if he will make a statement. (227710)

5. What discussions he has had with the Chancellor of the Exchequer on risks to holdings by Welsh public institutions in foreign-based banks. (227711)

I have regular discussions with the Chancellor of the Exchequer, not least during the regular meetings of the National Economic Council. I have also had discussions on the issue with the First Minister, the Welsh Assembly’s Finance Minister and Local Government Minister and representatives of the Welsh Local Government Association. In addition, my hon. Friend the Under-Secretary of State for Wales attended the meeting last week between the Minister for Local Government, the Economic Secretary to the Treasury and the English and Welsh Local Government Associations to deal with this important matter.

I thank the right hon. Gentleman for that lengthy and perhaps unenlightening reply. He will realise, as a responsible Secretary of State, that the whole issue is not to be left at the feet of the National Assembly, since the investments were made under Treasury rules with Treasury encouragement, and the liquidity injection is not being “Barnettised”. It should therefore be dealt with in this place, and I ask him to fight Wales’s corner on this issue.

The hon. Gentleman can rest assured that I shall certainly do that, but it is a matter both for us in the United Kingdom Government—he is right to point out the Treasury’s role—and for the Welsh Assembly Government, who are directly responsible for local government finance in Wales. I must tell him that the first issue is that we must try to get the money back from the Icelandic banks. As he knows, intense negotiations for that to happen are taking place.

Of course, if there are financial problems in the nine local councils affected in Wales—there is nothing to say that there are problems at the moment—the Welsh Assembly Government assure me that they will step in to help. The hon. Gentleman should be assured that we are working very closely together on what is an important issue.

As far as the Treasury guidance is concerned, it always stressed the balance between security and breadth of investment on the one hand and ordinary investment on the other.

There have been reports that at least three Welsh universities have more than £8 million at risk in Icelandic banks. Given the resource constraints that those universities already have, what impact does the Secretary of State think that this matter will have on higher education in Wales?

I hope that there will be none, and that the negotiations between the Treasury and the Icelandic Government and banks are successful, but of course we await the results of those. As the hon. Gentleman knows, the Bank of England has already given £100 million to the banks in Iceland to try to resolve the issue. The point is not unimportant, but as in the case of local authorities, we are not going to see a collapse of service. In the case of councils, there will not be immediate rises in the council tax for this reason, but we must obviously watch the matter carefully and do our best to get the money back.

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 are having 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?

Does the Secretary of State agree that local authorities in Wales and across the United Kingdom should make a greater commitment to the people’s bank—the Post Office—by making large deposits of their money in it, securing the UK post office network, rather than risking it in the meltdown of the banks, which is the advice for independent small nations that Plaid Cymru wishes to follow?

Yes, I would encourage all Welsh depositors to consider the Post Office as an excellent place in which to place their money.

The Auditor General for Wales has a duty to scrutinise the finances of public bodies. Does the Secretary of State have discussions with him and if so, what specific advice has he given on foreign investments to public bodies?

I have met the Auditor General for Wales, but that was before the issue of the Icelandic banks and local authorities arose. In discussions with my ministerial colleagues, I will look at the question of advice, but I repeat what I said to the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd): the advice generally from the Treasury and the Assembly is that the investment should be spread, and that security should be balanced with investment.

On behalf of the official Opposition, I issue a warm welcome to the hon. Member for Caerphilly (Mr. David) in his new role on the Front Bench, and I send our best wishes to the hon. Member for Ogmore (Huw Irranca-Davies) in his new duties.

Given the well-reported increasing risk attached to Icelandic financial institutions, why was no revised advice issued to Welsh public institutions earlier? In the light of the risks posed by further investments in foreign banks, can we be assured that new advice will now be issued regularly that takes these risks into account?

I was told by the Treasury that so far as its advice was concerned, it did not provide a list of individual banks or institutions in recent years and months, and it was up to individual authorities to judge what a prudent investment might or might not be, and of course, there would be professional advisers, as well. However, I repeat what I have said twice already: that that guidance had to be balanced between a breadth of investment and security, and every council has a responsibility so to do.

I thank the Secretary of State for that answer. In the joint statement from his Department with the Assembly Minister, the Minister said that there would be no immediate impact on services or council tax levels following this debacle, but as local authorities are now switching investment strategies toward low-risk, low-yield funds, their budgets are based on figures that cannot be achieved, and something has to give. When can we expect to see the council tax rise, assets sold or spending cut in Wales?

I obviously hope that none of that occurs, but the issue first, as I said, is to get the money back from Iceland. When that is done, it is for each individual authority in Wales that feels it has a difficulty to approach the Welsh Assembly Government, and then proper advice will be given to it. Of course, as the hon. Lady knows, nine authorities are involved to varying degrees. All of us have been told by the Local Government Association that there is no immediate threat to services or, indeed, to the level of council tax.