Bridgnorth District Council was today accused of negligence after depositing £1 million in an Icelandic bank days before its collapse.

Public spending watchdog The Audit Commission today revealed that the council was one of seven local authorities that failed to heed warning signs about the fragile situation with the Icelandic banks and deposited money.

It claimed Bridgnorth went ahead and invested £1 million after credit ratings for Icelandic banks were downgraded below acceptable levels.

In total, £32.8 million was deposited by the seven councils between the downgrading of the banks’ rating to ‘adequate’ in September last year and the collapse of the Glitnir and Landsbanki banks on October 7.

The council today denied acting irresponsibly and claimed to have acted on credit ratings supplied to it.

Spokeswoman Clare Gauden said after the collapse the council’s independent internal auditors were asked to investigate.

Council leader Elizabeth Yeomans said: “It made it clear it was based on credit ratings supplied to the council which did not suggest there was any risk.

“The impact upon the co- uncil’s ability to deliver services was not affected at all. It does demonstrate that we acted in a responsible way.”

The Audit Commission conceded that confidence in the creditworthiness of some of the Icelandic banks changed relatively rapidly.

But it said a number of credit-rating downgrades should have prompted treasury managers to review the creditworthiness of the Icelandic banks.

Commission chief executive Steve Bundred said: “We found that most local authorities heeded the warning signs about Icelandic banks.

“But some did not, and a number were negligent. Our report shows that there are lessons that must be learned by everyone.”

The Local Government Association said councils were currently expected to get back the “lion’s share” of their Icelandic investments.

* Powys County Council also had £4 million invested in two Icelandic banks but has not been singled out by the Audit Commission for acting negligently.

The council is now losing the interest, totalling £250,000 per year, but remains hopeful that the money can be retrieved.

By Sophie Bignall