A REPORT claiming Oxford City Council’s £4.5m tied up in failed Icelandic banks eclipses its £3m reserves does not give an accurate picture of the local authority’s finances, claims a leading councillor.

Ed Turner, deputy leader of the council, spoke out after the council devised a new treasury management strategy in a bid to avoid a repeat of last year’s Icelandic banks disaster.

Last year, the city council discovered it could lose £4.5m invested in two Icelandic banks. There is £1.5m deposited with Glitnir and £3m with Heritable.

City council spokesman Chris Lee said the money had not yet been returned.

The Audit Commission report, Exposure to the failed Icelandic banks, showed the £4.5m invested by the council was 150 per cent of the value of its £3m reserves, whereas South Oxfordshire District Council’s £2.5m deposit only represented five per cent of its £47m reserves.

The 150 per cent total is one of the highest in the country, according to the Audit Commission’s report.

But Mr Turner said the £4.5m was part of an overall £30m package of cash investments, and the commission’s analysis was not accurate.

He added: “We have more than £3m worth of reserves and we are building up a fighting fund to protect ourselves against the write-off of the money in Iceland.”

On Monday, the executive board approved the strategy, which attempts to reduce the risk associated with investing in foreign banks.

The strategy was approved the day before the Audit Commission report branded the city council the most exposed of the county’s six local authorities for the amount of funds invested in foreign banks, compared to reserves.

City council leader Bob Price said: “We have now identified a set of banks and building societies with whom we are prepared to lodge money — it’s a shorter list than before, and the risk is spread over a wider number of banks.

“We are restricting the number of foreign banks we invest with to a very small number.”

Steve Bundred, chief executive of the Audit Commission, said: “We found most local authorities heeded the warning signs about Icelandic banks, but some did not and a number were negligent.”

None of Oxfordshire’s six local authorities were among the seven across the country deemed negligent.