Millions of pounds were deposited in Icelandic banks by councils in Oxfordshire just days before the island’s financial system collapsed.

An Oxford Mail investigation has shown that long after some local authorities had been trying to withdraw their money, three Oxfordshire councils were opening new accounts with Icelandic banks as late as September.

The collapse of Iceland’s major banks in early October left British savers, companies and local authorities facing the loss of millions of pounds.

But it has emerged that on September 5, Oxfordshire County Council put £2m into Landsbanki, then paid in another £3m on September 10. The Vale of the White Horse District Council invested £1m in an Icelandic bank on September 24.

Using the Freedom of Information Act, former Lord Mayor of Oxford John Power has found out that the city council made four separate investments this year, totalling £4.5m. Sums of £1m were invested in June, July and on September 12.

For several months before these deposits were made, Cherwell and West Oxford-shire district councils and Oxford University were trying to get back money they had invested.

A spokesman for Cherwell said: “We tried to take the money out in March and again in April, regardless of any penalty we would have had to pay. However, we were held to the terms of our contract and weren’t allowed to remove our money.”

Newspaper and City anaylsts began raising doubts about Iceland’s banks at the start of the year, with the Financial Mail in March describing Icelandic banks as “the most unsafe in the developed world”.

Liz Brighouse, the county council Labour group leader, said: “I had understood that money had been invested in Icelandic banks before Sep-tember and the investment had accrued significant interest.”

Mr Power said: “It simply makes no sense to me.

“I wonder how many of our elected members actually knew about this. In March there were articles saying that Iceland’s banks topped ‘the riskiness league’.”

Charles Shouler, the county council cabinet member for finance, said: “Perhaps those who think the incredible and unprecedented ex-tent of the financial convulsions of September could have been foreseen should lend every council, police authority, university, health authority and Audit Comm-ission their crystal ball.

“Wise after the event remarks aren’t welcome. The simple truth is that Icelandic banks had a high credit rating when the money was invested.

“Had there been any hint of a collapse, every single organisation, including more than 100 local authorities, would have stopped making deposits."

Ed Turner, the deputy leader of the city council, said it had been let down.

He said: “Decisions on where to place money are made by council officers, who are informed by the credit ratings agencies and our treasury management consultants.

“The world of local government, charities and universities has been let down by these experts, who it turns out, were very late in forecasting the banks’ demise. Once we received the experts’ warning no more money was invested.”

The council says it has been hit by interest rate cuts which have slashed returns from investments.

At the same time it is being squeezed by big rises in energy costs, making street lighting and other services more expensive.

But the ruling Tory group said that pegging council tax increases next year would remain a priority. Any increase bigger last year’s 3.875 per cent rise would be “a last resort,” said the Conservative leadership.

Charles Shouler, the cabinet member for finance, said: “We will spend a great deal of time examining our options.”