by political editor Paul Francis

Kent County Council is to move back into the money markets but will not be investing taxpayers’ money in foreign banks - at least for the time being.

The authority has been placing all new investments with the Treasury since it emerged a year ago it had £50million at risk in three Icelandic banks.

However, that has proved costly because while the Government's Debt Management Office (DMO) is seen as a safer haven for taxpayers’ cash, it offers significantly lower rates of interest on deposits.

Now KCC is to return to making deposits with UK-based high street banks offering more competitive rates of interest. Among five banks the council has agreed to invest in are HBOS and the Royal Bank of Scotland, both of which were baled out by the Government with signficant injections of cash.

Cllr John Simmonds (Con), KCC's cabinet member for finance, said the council was adopting a more cautious strategy, incorporating recommendations in an independent audit report the authority commissioned following the banks' collapse.

He said: "We are only [agreeing] to make deposits with institutions that are of such signficance that the Government would not allow them to fail. These deposits are not guaranteed but, as we have seen from events with RBS and HBOS, they are significant parts of the banking system.

"Given they have the same security as the Debt Management Office, it would be a waste of public resources if we did not avail ourselves of that."

He did not rule out the possibility of making future investments in foreign banks in the future.
KCC finance director Lynda McMullan said better rates being offered by some of the banks meant the council could be some £800,000 better off over a year, even though interest rates remained low.

"There are significant gains to be made and we do not see it as adding signficant risk," she said.

The five banks KCC has agreed it may deposit money with are all effectively backed by the Government through the Credit Guarantee Scheme.

Opposition Lib Dem spokesman Cllr Tim Prater said: "As long as KCC is investing in blue chip government-backed banks that people in Kent know and use, I do not think it is a problem. Frankly, it is in the best interests to get extra money through interest but it has to be tightly controlled."