Treasury warns of possible £222m levy over Icesave

In 2008, HM Treasury made loans to the FSCS to fund compensation for the failures of Bradford & Bingley, Landsbanki (Icesave), Kaupthing Singer & Friedlander, Heritable and London Scottish.

The total loan interest in 2013-14 was forecast to be £439m, which the FSCS spokesman said “will be levied in 2014-15”.

According to the FSCS, 2014-15 will be the second year that the scheme will have to raise an industry levy to repay the capital of the non-B&B loans from HM Treasury so that they are fully repaid by 31 March 2016..

She said: “In the case of the Icelandic banks and London Scottish for repayment of the loans, we will apply a total final recovery shortfall of £961m (£1,161m minus £200m for Dunfermline) to be raised by levy, of which £363m was collected in 2013. The B&B loan principal is due to be repaid from recoveries from the company.”

However, she confirmed that “the main uncertainty around the recovery projections is for Icesave”. As at 31 December 2013, only 55 per cent had been received. The assumption used for this levy is that a further 15 per cent of recoveries are received by 31 March 2016, but this may change.

She said: “If no further recoveries are received from Icesave before 2016, an additional £222m would need to be recovered by levy in the next two years.”

Her comments follow a Freedom of Information Act request issued by Derek Bradley, founder of advisory forum Panacea Adviser, which asked the Treasury and the FSCS to quantify how much the scheme borrowed from the Treasury to pay out compensation, and how much it was to levy the industry to pay back the loans.

Mr Bradley said: “The FSCS is broke and without the loans it could not function. This highlights again the reason for a fundamental reform of the FSCS levy system.”

This comes as the TIF, the guarantee scheme for Iceland, said that British and Dutch authorities were filing lawsuits over the collapse of Icesave, to a total of £5.6bn.

Jeffrey Lewis, a director of Edinburgh-based Robson Macintosh, said: “I don’t think you can expect IFAs and wealth managers to cover the cost of that. Perhaps there should be an extra levy on banking profits due to the dreadful advice they have given to clients over the years, which is now being exposed almost every day as the next fine is imposed and they write off another £2bn in interest rate swaps.”