MORE than £7million of Lancashire taxpayers’ money may never be recovered from the Icelandic banking crash, a report has suggested.

Lancashire County Council had £10million invested in the doomed Landsbanki when it collapsed in October 2008.

The authority initially hoped to recover the full amount – made up of £6.4million of LCC cash, £2.48million from the pension fund, £668,000 from the Lancashire Police Authority, and £410,000 from the Lancashire Combined Fire Authority.

This was revised to £9.5million and later £8.3million in 2009.

But a new report put to the county council’s audit committee has warned that as little as £2.3million could be retrieved after other depositors were not treated as ‘preferential creditors’ in the long-running administration process.

The report said that when Landsbanki was being wound up, local authority depositors such as the county council were at the front of the queue and could expect 83p for every pound invested.

But another Icelandic bank, Glitnir, took a different view and the authority, represented by the Local Government Association, is appealing for priority status.

The report warned that if the Landsbanki decision is overturned, the county council can expect a much lower return of 23-27p in the pound.

There are also warnings that the whole process could take until 2018.