Northumberland chiefs deny any mistakes over investments

Their comments came as it emerged that private sector and local government experts are heading to Northumberland to offer support.

Mr Stewart and Mr Mason expressed confidence that cash would be returned - but declined to predict how much - and insisted council tax and services would be unaffected for the "foreseeable future".

North MPs questioned why Northumberland County Council failed to spot warning signs as financial experts raised the alarm, with cash still being invested in Iceland as late as last month.

Ronnie Campbell, Labour MP for Blyth Valley, claimed his district council was warned earlier this year about the risks of investing in Icelandic banks.

Speaking in the Commons, he added: "Everybody seemed to get the news in March or April that they should get their money out, yet Northumberland was still putting it in."

Hexham MP Peter Atkinson said the council seemed unaware about financial agencies downgrading the strength of Icelandic banks.

He warned the new unitary council being set up in Northumberland could inherit a "precarious" financial situation that might stop some services.

Council chief executive Steve Stewart said: "I don't think anybody has made mistakes. What has happened here is that local authorities have been the victims of worldwide economic events."

Finance director Steven Mason said all normal practices and guidance were followed and insisted all Icelandic banks had high credit ratings.

He added local government and other organisations had to review procedures in light of recent events, which Northumberland was doing.

Later, a Northumberland council spokeswoman confirmed it was one of 10 authorities that "specialists" were offering support to. She added the experts would report back to the Government and the local government association, who were ready to provide extra support if necessary.

The crisis also sparked a row between Liberal Democrats who have run the council since May and Labour, under whom most investments were made. Lib Dem county councillor Derek Kennedy claimed Labour had made "risky" investments with his party left to clear up.

But Peter Hillman, former Labour leader of the council, said the right decisions were taken at the time with "sound" advice from the director of finance.

Council chiefs have also insisted millions of pounds in a fund run by a collapsed American bank is safe, after yesterday revealing further details about the investment.

The authority's pension fund has paid £8.56m into a fund run by Lehman Brothers, although the council put the value of the investment at £7.3m this week.

Coun Derek Kennedy, chairman of the authority's pension fund, said the cash was put into the fund last year, but insisted it was "safe and ring-fenced" and only represented 1% of the total £700m pension pot. He also revealed that discussions had been held with representatives of the company a "matter of weeks ago" in Morpeth to discuss the fund and the financial health of Lehman Brothers itself.

The fund is still being run by remaining Lehman staff, but is due to be transferred to another company early next year, added Mr Kennedy.

"To the best of our knowledge, the money is safe and ring-fenced and we are getting updates," he said.