Charity losses in Iceland should be covered

LONDON (Reuters) - The government should cover losses charities suffered as a result of the collapse of Icelandic banks, but local authorities and savers with offshore deposits should not get a bailout, MPs said on Saturday.

Parliament's Treasury committee said it would "seem perverse" to reward local authorities who had made bad investment choices with a taxpayer-funded rescue.

Last month the government revealed that 125 councils in England were exposed to the tune of 923.2 million pounds in Icelandic banks by the end of last year.

It was forced to change accounting regulations to enable authorities to postpone any possible impact on their budgets until 2010-11 and stop them slashing services and raising taxes.

The committee also said the government could not be expected to "provide cover for deposits held by British citizens in jurisdictions outside the direct control of the UK."

"The work undertaken by the charitable sector often provides the most vulnerable elements of society with invaluable support," said committee chairman John McFall.

"At a time when more people than ever are faced with difficult economic circumstances, we believe that it is imperative that charities have access to the funds that were provided to them by the public," McFall said.

However, the Local Government Association (LGA), which represents councils, rejected the all-party group's recommendation.

"There must be a consistent and fair approach to compensation. If charities are to be compensated why should there no relief whatsoever for the council taxpayer? Councils provide vital services to society's most vulnerable people," said LGA chairwoman Margaret Eaton.