Councils Have 900 Mln Pound Hole Due Iceland Banks

The overhaul of accounting rules would give councils breathing space while efforts continued to recover the money, Healey said.

The government acted on Thursday to stop local councils slashing services and raising council tax to cover a hole in their budgets of more than 900 million pounds caused by their investments in failed Icelandic banks.

Local Government Minister John Healey set out new accounting regulations to enable authorities to postpone any possible impact on their budgets until 2010-11.

"Following the failure of Icelandic banks last year, the government acted immediately to ensure no local authority faced serious short-term difficulty as a result," Healey said, adding that he was acting to avoid services being seriously hit.

"This money isn't lost but it is at risk so under normal financial rules this risk would need to be taken into account in their budgets," he said. The new rules come into force on March 31 and apply immediately.

The government released statistics on Thursday showing 125 councils in England were exposed to the tune of 923.2 million pounds in Icelandic banks by the end of last year.

The overhaul of accounting rules would give councils breathing space while efforts continued to recover the money, Healey said.

Iceland's banking system collapsed last year under the weight of billions of dollars of debt accumulated over years of overseas expansion.

They were taken over by the government in the space of a few days in October last year and their collapse has hit investors worldwide.