ALISTAIR Darling rejected advice from the civil service when he controversially went ahead and guaranteed all the UK deposits of those who had savings with Icesave, the Icelandic bank, it emerged yesterday. Darling was advised by permanent secretary Nick Macpherson that bailing out Icesave carried with it the prospect of having to do the same with other foreign banks in the UK and that the amount at risk could be unlimited, according to an 8 October 2008 letter published in the House of Lords library.
Macpherson said the £3bn move by Darling fell short of even-handed deployment of the Treasury’s function, since some of the benefit, especially the implied guarantee of other foreign banks’ branches, would accrue to non-UK institutions. The Macpherson letter was published on political blogger Iain Dale’s website.
The Treasury last night said: “The chancellor judged, only three weeks after the collapse of Lehmans, that the possibility that many thousands of people might lose their savings could have triggered a panic amongst other depositors. This was a risk he was simply unwilling to take.”
The UK is still trying to get a refund of its money, suggesting that the civil service was right to be worried.