COUNCILS in Oxfordshire have started to recoup some of the £33.5m thought to have been lost in the Icelandic banking crisis.

The county’s six main councils now expect to have the vast bulk of their cash returned from four collapsed Icelandic banks — with financial experts predicting that between 50 and 100 per cent of the total value of all deposits will be repaid.

And the authorities could end up with an unexpected bonus after it emerged the banks may pay out claims for interest — worth at least £2m to county taxpayers — on their investments.

So far £1.34m has been paid back to three authorities – Oxford City Council, West Oxfordshire and South Oxfordshire district councils.

The Local Government Association, which is fighting to get back the cash on behalf of more than 350 councils in England and Wales, said nationally administrators had repaid almost £70m to date, with £30m more expected to be repaid by the end of the year.

Councils with investments in Glitnir have the most reason to be cheerful, as the Chartered Institute of Public Finance and Accountancy’s local authority panel said the bank had enough cash to repay deposits by British authorities in full.

Oxford City Council has £1.5m tied up in Glitnir, West Oxfordshire £5m, and Cherwell £6.5m.

Cherwell chiefs not only hope to recoup the cash but also receive £550,000 in interest payments up until April 2009.

James Macnamara, Cherwell’s portfolio holder for resources and organisational development, said: “Originally when the news came out we thought we’d have to write everything off. Then it became more likely, after the LGA’s efforts, that we’d get our investment back.

“Suddenly it became clear we’d get the interest until November 2008 and now until April 2009.

“If this turns out to be the case, it will clearly be good news for council services.

“It’s also good news as we aim to keep council tax increases below the rate of inflation.”

Authorities with money in Glitnir could be repaid as early as April.

Oxford City Council also has £3m deposited with Heritable, but it only expects to receive 80 per cent of that money back, with repayments spread until 2013.

Ed Turner, executive board member for finance, said: “Until we have received the money we do worry.

“That being said things are now looking better that we will recover the overwhelming portion of the deposit.

“The first forecast was quite gloomy that we could get anything back, possibly 10 per cent.

“We couldn’t go and create extra jobs with this though because we are taking a big hit with the concessionary bus fares and an ongoing hit with lower interest rates.”

West Oxfordshire, which has the most money of any Oxfordshire authority tied up in the crisis — a total of £9m — hopes to recoup £801,000 in interest.

Oxfordshire County Council has £5m in Icelandic banks, South Oxfordshire £2.5m, the Vale of the White Horse £1m and Thames Valley Police £5m.

Oxford University has £30m in Icelandic banks Landsbanki, KSF and Glitnir, and has so far been repaid £2.48m.