The UK signalled Wednesday it would use anti-terrorism powers to recoup money owed to UK depositors in a failed Icelandic bank in a move that risked sending Britain’s relations with Reykjavik to their lowest since the 1970s “cod wars”. UK taxpayers are likely to pay out at least £2.4bn as part of a £4.6bn scheme to compensate hundreds of thousands of account holders at Landsbanki, the Icelandic lender, according to Whitehall sources. Alistair Darling, chancellor, offered a blanket guarantee to UK retail depositors with money placed in Icesave, a failed internet bank owned by Landsbanki, which was seized by Iceland on Tuesday and declared insolvent. Icesave has about 300,000 UK customers, nearly equivalent to Iceland’s entire population. But wholesale depositors in failed Icelandic banks – including dozens of local authorities and some universities – were offered no immediate support. Some UK local councils have lost sums of up to £40m, and are calling for protection to extend to town halls. Meanwhile, Gordon Brown vowed legal action against the Icelandic authorities to recover depositors’ money.
