Sutton Council is confident of recovering more than £4m of frozen deposits from the receivers of a collapsed Icelandic bank.

Administrators for Heritable Bank, a subsidiary of Landsbanki, expect local authorities to get back 80 per cent of funds.

Their creditors’ report will come as a relief to local taxpayers who feared the loss of the £5.5m sum invested by Sutton Council.

Councillor Ruth Dombey, deputy leader of the local authority, said: “It is good news that we are in line to recover up to 80 per cent of our deposits in what are cautious estimates from the administrators.

“Should the economy improve we may receive more than 80 per cent and we are set to recover some of the money in coming months.

"The money frozen in Heritable has had no impact on council services or the level of council tax this year.

"However, we acted quickly after the events of last September to review and subsequently change the way we invest money and tighten the credit rating criteria for banks we invest with.”

The Conservative opposition group accused the administration of putting a positive spin on events when £1.1m of public money, plus interest, may still be wiped out.

Councillor Tim Crowley, Tory finance spokesman, said: “All ruling Lib Dem councillors will have to look residents in the eye and justify why their finance boss, Councillor John Drage, was asleep on the job – especially as a former Bank of England economist.

"This is a question of public accountability and confidence, so he should be considering his position.

“In a time of recession, this council is playing fast and loose with public cash, with controversial multimillion pound pet projects and investments in bust Icelandic banks.

"Eventually, taxpayers will foot the bill for this folly via council tax.”

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