EAST Staffordshire Borough Council invested millions of pounds in a failed Icelandic bank – less than a month before the collapse.

The Burton-based authority had £4 million frozen when the Scandinavian country's three biggest banks went under on October 6 last year.

An investigation has now revealed that £2 million of that sum had been deposited in a UK-based subsidiary – which also fell victim to the collapse – just four weeks earlier on September 8.

It is believed that some of the money had been due to mature on the day the bank folded.

But the area's elected representatives have continued to reject accusations they were reckless with taxpayers' money.

Councillor Richard Grosvenor, deputy leader for corporate services, said: "I remain confident that the message we gave at the time stands true, that thanks to the council's sound financial management, we were able to mitigate any potential risks and any financial effects were kept to a minimum.

"With regards to the timing of the investments, we received assurances right up to about a week before the problems occurred that the investments were safe.

"I'm completely satisfied, as were the independent investigators, that we acted at all times properly and in the interests of the council and our taxpayers."

The authority, which covers Uttoxeter and the surrounding villages, was among 105 English councils which have had funds totalling £900 million frozen.

Hopes of recovering the cash have dwindled in recent weeks and the Government has indicated it is not willing to bail authorities out in the current economic climate.

A report claims councils ignored doubts expressed about Icelandic investments by banking watchdog the Financial Services Authority in March last year.

Some authorities heeded the warning, included neighbouring Staffordshire Moorlands District Council, which withdrew all its money from Icelandic banks the following month.

But those councils which continued to invest have defended their actions, instead laying the blame with Government-approved credit rating agencies which failed to flag up signs of trouble.

Borough councillor Geoff Morrison, pictured, described the investments as "unfortunate".

He said: "It couldn't have been any worse timing. I believe we were due to receive some of the money back on the day the collapse was announced.

"It was really bad luck and it's unfortunate that we ever got mixed up with the Icelandic banks. Someone took their eye off the ball when these investments were made, but it's easy to look back with hindsight.

"I'm happy with the way it was subsequently handled."