HYNDBURN Council has reassured worried residents that it has no cash invested in hard-hit Icelandic banks.

But the borough’s council tax payers could still suffer as Lancashire County Council has £9M invested and the police and fire authorities £1M between them.

In a worse-case scenario services could be cut or council tax could rise to make up the shortfall.

The cash was invested in Landsbanki, taken over by the Icelandic government, which is refusing to guarantee funds.

County Councillor Tony Martin, Cabinet member for resources, said the sum it invested in Landsbanki represented less than two per cent of its total investments.

He said: “We have spread this money as finely as we could and we will do our level best to protect front-line services.

“At the moment we are waiting to see how the Government responds to calls by the Local Government Association to protect councils’ deposits. We will be doing everything we can to recover this money.”

The three-month investment was deposited in Landsbanki on 2 September and was due to be returned on 3 December.

About £2.5M was an investment for County Hall’s pension fund and £6.5M came from council revenue funds which would have been allocated to specific projects.

Hyndburn Council had a lucky escape as it recently moved cash out of Icelandic banks into Irish banks which have given full guarantees on all deposits.

Councillor Marlene Haworth, Cabinet member for finance, said: “We have previously used these Icelandic banks among many others but as the credit crunch became worse we moved our deposits into more defensive banks.

“In the last few days we have made substantial investments into Ireland, as the Irish Government has given a full guarantee on all deposits made with certain Irish institutions.

“However, the banking world is clearly a much riskier place now than it has ever been and it is not possible to be certain about any particular financial institution.

“We have therefore spread our available money around so that we don’t have all of our eggs in one basket.

“We are also sacrificing high interest rates for safety when making deposits and trying to place our money where we believe governments would not let a bank fail even if it got into severe difficulties.

“I believe we are taking all the appropriate action to protect the funds of the council in the present climate.”