Unions demand government help to pay council workers' wages

The call emerged as council bosses revealed that they will meet the Icelandic ambassador this week to plead for the return of almost £1 billion of public money deposited in the country's banks.

More than 100 local authorities had gambled that the cash would rake in higher interest in Iceland, but the plan came unstuck last week when all three of the country's top banks were seized by the state.

A desperate Prime Minister Gordon Brown then used the Anti-Terrorism Act to seize the British assets of the Icelandic banks, which are reported to be worth more than the councils' frozen cash.

The Unite union's local government organiser Peter Allenson urged the government to step in to ensure that the frozen money is not used as an excuse to withhold wages from council workers.

"If that requires direct assistance from central government, such as that provided to the failing banks, then there must be no question of this money not being forthcoming," he said.

Mr Allenson pointed out that the local authorities' failed investments could also see council services being threatened.

"These services are provided by some of the lowest-paid workers in the country and are used every day by some of the neediest people in the country. This latest news will concern them deeply," he said.

The UNISON executive council demanded to know "exactly how much money the councils could lose and what the impact is going to be."

It issued an emergency statement on the crisis calling on the government to protect workers from the fallout.