Special report by political editor Paul Francis

Councils in Kent who invested millions of pounds in Iceland have received only a fraction of their money back one year on from the banking crisis that hit the country.

Of the £63million tied up with the three banks by five authorities and the Kent Police Authority, a little over £4million has been returned since last October and it could be several years before the bulk is recovered as protracted wrangling over whether councils should get priority have yet to be resolved.

The largest sum has come back to Kent County Council, which has secured £3 million of the total of £50 million it had on deposit.

Canterbury City Council has also received some money back but the £673,871 returned still leaves a further £5.3million outstanding.

Three other councils - Sevenoaks, Dover and Tonbridge and Malling - who each had £1million on deposit have yet to see a penny back from any of the banks.

Kent Police Authority, which had £11.1million on deposit that was invested on its behalf by KCC, has seen £516,000 of its money come back and is forecasting that it will eventually recover £9.5million, a loss of £1.6million.

KCC said it remained optimistic the bulk of its money would in time be returned but based on current predictions has estimated it could eventually have to write off about £5million.

Cllr John Simmonds (Con), KCC cabinet member for finance, said: “We have no reason to be any less optimistic than we were at the time we said we could get between 85 and 95 per cent of the money. Of course we would hope for no losses but that would be unrealistic.”

The authority is poised to move back into the money markets after a year placing all its investments in the Government’s Debt Management Board, which has been paying a much lower rate of interest.

Cllr Simmonds said: “The important message is that no frontline services have been affected. We are lucky because we are a large authority.”

Why the wait? Read Paul Francis' blog on the Icelandic crisis>>>

Tonbridge and Malling council said it was less clear now whether initial predictions that it would recover 95 per cent of the £1million invested in Landsbanki would be fufilled.

Finance director Sharon Shelton said: “We are unlikely to have a reliable feel for the amount until after the Icelandic winding-up committee for Landsbanki meets later this year. More recent updates have suggested the likely return could be slightly less than this earlier advice.”

The issue of whether the council would be treated as a preferred creditor - meaning it would get priority when money is returned - had not been resolved, she added.

“As we understand it, the issue of whether or not councils will benefit from preferred creditor status is still being tested so it is difficult to speculate at this stage [what the returns will be.]”

Canterbury City Council said it expected to receive 80 per cent of the £4million it had deposited with the UK-based Heritable Bank, a subsidiary of Landsbanki.

It has already received a payment of £673,971 but says it does not expect any repayments from the £2million deposited with Glitnir until next summer at the earliest.

Council leader Cllr John Gilbey said: “We have remained confident since the start that we would get back the majority of the money invested in Icelandic banks.”

Sevenoaks said it anticipated getting back 85 per cent of its £1million deposit in Landsbanki but that repayments were likely to be spread over three years.