The government has set up a joint ‘rapid response unit’ with finance experts that can be deployed to local authorities which need assistance following the failures of Icelandic banks.

The unit has been established by Government, the Local Government Association (LGA) and the Improvement and Development Agency, to provide support to local authorities facing severe short-term difficulties.

Communities Secretary Hazel Blears MP said it will consist of a team of experts in local authority financial management ‘in place and ready to go immediately to any authorities who need that assistance’.

She said it was part of a wider action plan of support to English councils.

In a written Parliamentary answer, Blears also said that many local authorities had already publicly stated that any risk they face was not a threat to frontline services.

However, a small number of authorities may have specific problems which is why the government was putting in place this support and expertise.

She added that no local authority had told the LGA that it can not pay the wages of its staff.

Blears said: ‘The Government's first priority has been to do everything we can to help local authorities, along with other creditors, get back the money which they had deposited in the banks.

‘My department has been working closely with the Local Government Association to ensure that individual authorities who are experiencing severe short term difficulty get assistance. The new rapid response team is up and running, with a team of finance experts ready to go immediately to any authorities who need assistance.

‘We are taking this action to protect council taxpayers, communities and those public services on which the most vulnerable people in our society depend.’

The LGA is also finalising an ‘urgent analysis of the effects of the situation on individual local authorities’ and will be meeting with the Department of Communities and Local Government and the Treasury later this week to see what further action is needed.

Last week, Chancellor Alistair Darling froze the UK assets of Landsbanki and placed Kaupthing Singer & Friedlander into administration.