No Iceland compensation for local authorities or offshore depositors

Local authorities and investors who used offshore accounts to invest in Iceland should not be compensated, says the Treasury Committee.

The recommendations made in the first of a series of Treaury Committee reports on the banking crisis will infuriate UK savers who deposited money in the failed Isle of Man and Guernsey subsidiaries of Icelandic banks.

It also warned that, while it would not be pushing for them to receive compensation, there could be grounds for an investigation into financial advisers who put clients' money into the offshore subsidiaries.

The Committee said it was 'surprised' that offshore savers using IFAs were not advised of the changing risk profile of their savings. It added that it 'hopes to explore further the role of advice to customers in its forthcoming inquiry into consumers and the banking crisis.'

Speaking of the recommendation, chairman of the Committee Sir John McFall (pictured) said: 'While we have much sympathy for the fate of all depositors, the Committee unanimously agreed that UK taxpayers cannot be expected to cover deposits held in institutions outside the UK's direct regulatory control.'

McFall added the Committee would be urging UK authorities to work with the Isle of Man and Guernsey to resolve the issues, although this will be little comfort to savers who have lost money.

More widely expected was the comments from the Committee regarding local authorities. It said it 'did not accept that there was a need to provide assistance to the local authorities' and although acknowledging they may feel hard done by, the Committee said more was expected of local authorities, adding it would be 'perverse' to help some while others had avoided the debacle.

'Local authorities are required to take their own decisions on the level of prudent, affordable capital investment. They have a duty to the taxpayer diligently to protect the money they are investing on their behalf,' the report said.

'Some authorities have shown themselves to be better than others in this regard, and it would seem perverse to reward those authorities who failed to protect their investment with yet more money from the taxpayer.'

While the decision not to cover local authorities or offshore investors will no doubt be greeted with cheer in some quarters where it has been argued that the taxpayer should not have to pick up the tab, it is a sobering thought that the UKs finances are under such pressure that wholesale assistance cannot be provided.