CONTINGENCY plans are being applied by budget bosses to brace them for potential losses of up to £18 million deposited in Icelandic banks.

Details of the financial security of the £27.4 million being held in the two failed banks, Landsbanki and Glitnir, have been outlined in Barnet Council papers due to go before Cabinet next week.

The council budget and council tax 2010/11 report highlights how the council could be at risk of losing up two thirds of all Icelandic deposits after “priority status” was removed by the winding-up board of Glitnir Bank.

Previously local authorities had been recognised as “secured creditors” and council bosses stood by claims that they expected to receive 95 per cent of the deposits placed with Landsbanki, plus all the interest accrued on the up to November 14, and 100 per cent of deposits placed with Glitnir Bank, along with the same level of interest.

Initial losses had been predicted at just £4.3 million before Landsbanki dropped its return rate to 83 per cent and Glitnir announced “general unsecured creditors” would be entitled to about 25-30 per cent.

The report states: “The current position is that in the event that the Council’s claims for either Glitnir or Landsbanki are confirmed as having unsecured status, between £10.4m and £18m will have to be found from reserves and balances.”

The papers emphasis that “at the time of finalising this report, no actual loss has been sustained” adding a legal challenge has been started by the Local Government Association on behalf of councils to secure them priority status.

Council leader, Councillor Lynne Hillan, said the council has earmarked £7.4m as part of their reserves to cover any shortfalls, and believes they have “very strong arguments” to ensure losses are minimised.

She said they initially accounted for small and “very manageable” losses, but added: “We have to look at the worst scenario and it is only prudent we have these reserves and make contingencies.

“We are very confident we will get most of the money back, and although we have to account for some losses, hopefully the losses will be minimal.

“There is no way it is going to increase any more. The very worse case, if everything fails, is reflected in the files.

“It is very important we emphasise this will not effect the council budget and no front line services will be affected.”