Could the Audit Commission be poised to capitulate to demands from Kent County Council that it withdraw its charge that the council was negligent over its £50million investments in Icelandic banks?

Ever since the Audit Commission published its report, KCC has been piling on the pressure and calling for a retraction.

I have now heard from separate sources that this pressure could be about to pay off.

What I have been told, and none of it is confirmed yet, is that the Commission has accepted that it overstepped the mark in describing KCC and six other authorities as negligent.

My sources say some sensitive behind-the-scenes discussions are said to be taking place about how the Commission goes about effecting this climbdown in a way that doesn’t leave too much egg on its face – which could be tricky, to say the least as the councils are demanding that however it is engineered, it should have the same impact as the original damning report.

KCC is looking for an outright apology and admission that the Commission’s report was flawed and its methodology was wrong. I have no idea if it will get one. I suspect that the Commission will be holding out for the Gordon Brown line of expressing regret, if it does have to admit it got it wrong.

Either way, if it happens, it would be a humiliating retreat for the Commission which sources suggest could leave some casualties.

And County Hall’s ruling Conservative administration would be able to claim something of a victory.

UPDATE: I've spoken to the Audit Commission this morning and it is saying that nothing has changed. In a statement, it said: "We continue to be in correspondence with the London Borough of Havering and Kent County Council about Risk and Return, our report into deposits made by local authorities with Icelandic banks. No action has been agreed at present."

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WHICH brings me to the other Icelandic news - the renewed optimism at County Hall that it is destined to recover most of the money tied up with the three banks.

Confidence is rising after administrators for the Heritable Bank reported that KCC and others were in line to recoup between 70 and 80 per cent of their deposits.

Of course, this is good news. But before hanging out the bunting, it’s worth pointing out that, on the basis of the £18million KCC has on deposit, that could still represent a loss of between £3.6million and £5.4million.

Not taking into account the on-going loss of interest because KCC – like all authorities – are now playing safe and new deposits are being placed with the Government via the Treasury Management Board.