by political editor Paul Francis

Councils are facing renewed criticism over their failure to spot warning signs that Icelandic banks were heading for collapse last year.

An all-party group of MPs says complacency, lack of expertise and inaction all helped put taxpayers' money at risk.

KCC has £50million tied up in three Icelandic banks but says it is increasingly confident that it will get as much as 90 per cent back.

However, MPs on the Communities and Local Government Select Committee who investigated deposits by authorities say councils relied too much on credit rating agencies for advice without any interpretation of the data.

In a report on the issue published today, MPs said there was evidence many council staff lacked training or expertise in how to handle investments.

"Our inquiry has exposed a significant level of misunderstanding, misinformation and complacency, not just within local authorities, but also among those who provide them with specialist investment advice," said Dr Phyllis Starkey, committee chairman.

"While few predicted the events that shook the financial system last year, their exceptional nature provides no excuse for the substantial failures that occurred in local authority financial arrangements."

KCC insisted it had acted in accordance with the advice it received from its professional brokers but finance chiefs conceded that was not as complete as it could have been.

Cllr John Simmonds (Con), KCC’s newly-appointed cabinet member for finance, said the report covered old ground:

"There are lessons to be learned. We have to make sure that the advice we get covers all contingencies. The one are we do need to think about is country exposure. It is always easy to be wise after the event. At the time, these banks all had triple-A ratings."

The council had acted in accordance with its procedures at the time on investments, he added. "We thought we had the situation covered and we certainly acted in accordance with our procedures but with hindsight, it was not enough and the advice was not as good as it should have been. The important thing is that we recover the money and we are optimistic on that front."