DORSET County Council is likely to recoup most – but not all – of over £28 million of public money threatened by the Icelandic banking collapse.

The authority had £28.1 million in loans tied up in troubled Icelandic bank Landsbanki, which collapsed in October last year, and its UK subsidiary Heritable.

Dozens of local authorities across the country had millions of pounds invested in banks in Iceland when the country’s economy went into meltdown and the banks were placed under government control.

Dorset County Council has been among those facing a nervous wait to see if it could reclaim any of the millions of pounds they had tied up in the institutions.

The latest indication given by Heritable’s administrators Ernst and Young is that the authorities would receive up to 80 per cent of the money they had invested.

That would mean Dorset County Council would retrieve around £22.5m of the funds, but still stood to lose around £5.5million.

Ernts and Young are currently aiming to declare the first payment to creditors of 15 per cent of the funds in July or August this year and the payment could take up to three years to complete.

Dorset County Council, Dorset Police Authority and Purbeck District Council all had multi-million-pound investments frozen by the Icelandic government following the banking crisis, prompting fears of service cuts and council tax hikes. The money includes cash from pension funds.

Council leader Angus Campbell said: “This is encouraging news. However, until we begin to see some of the money returned we will remain cautiously optimistic.

“We have always been confident that we will recover most if not all of the county council’s investments in Icelandic banks and we will continue to make all efforts to do so.”

The council’s Labour group leader Mike Byatt said: “The public is concerned at the amount of money which has been put at risk in the first instance, of £28million in Iceland.

“It is a significant amount of money which would have a severe impact on the county council finances.

Councillor Byatt said that, although it appears the council will recoup much of the money, it is still set to lose a significant sum and work needed to be done to make sure this did not happen again in the future.

He said: “This is obviously a concern for all members of the council and we will be asking questions at the next county council regarding the actual amount we risk to lose.”

CASH THAT WENT TO ICELAND

IN OCTOBER last year Iceland’s banking system collapsed and it emerged that dozens of local authorities in England had millions of pounds tied up in the major banks such as Landsbanki, Glitnir and Kaupthing.

Authorities are advised to spread their cash balances across a range of banks and financial institutions by the Treasury Management Code of Practice.

At the time of the collapse Dorset County Council had around £225 million spread across 24 banks, with £15 million in Landsbanki and £13.1 in its UK subsidiary Heritable.

Dorset Police Authority, with accounts managed by the county council, also had £7 million in the banks.

Ernst and Young have now suggested creditors will receive at least 70 per cent of the funds.