ALMOST £100 million of Westcountry taxpayers' money deposited with Icelandic banks was at risk last night as the full scale of the economic crisis emerged.

The revelations sparked warnings that council tax bills will have to rise or the axe will "inevitably" fall on public services.

Town halls, police and fire authorities, and even charities, have investments at risk after the collapse of financial institutions in Iceland.

Nationally, the total amount of public money at risk could yet top £1 billion.

Last night, a crunch meeting between ministers and council leaders failed to reach a deal on guaranteeing the deposits for public bodies in the same way the Treasury has already promised for private individuals.

But the Government insisted the councils had not been "reckless" and held out the possibility of help in the weeks to come.

In a joint statement with the Local Government Association, ministers said: "We will judge what's appropriate on a case-by-case basis but in previous situations, support has included helping local authorities restructure their financial priorities, providing additional expertise and capitalisation of expenditure."

In the Westcountry, those at risk of losing millions include county councils in Dorset, Somerset and Cornwall, city councils in Plymouth and Exeter and small district authorities across the region. Police and fire services in Dorset are also exposed to potential losses of £8 million.

In some cases, the amounts at risk are up to 10 per cent of the council's savings.

The Tories said town halls faced a "massive financial shock" while the Liberal Democrats said the money at risk was "essential" for the survival of public services.

The Icelandic banks where taxpayers' money from the Westcountry has been invested include Landsbanki and its UK subsidiary Heritable, as well as Glitnir Bank.

In a sign of the deepening crisis, the UK Government yesterday froze an estimated £4 billion of British financial assets in Landsbanki after turmoil in the Icelandic banking sector.

Lib-Dem local government spokesman Julia Goldsworthy said the Government's first priority had to be recovering as much of the money as possible.

The Falmouth and Camborne MP added: "The real issue here is making sure that front- line services like fire and policing, social care and transport are protected.

"The answer isn't for the Government to guarantee these loans. That would simply pass the buck from local tax payers to income tax payers, which would not be much comfort to those already struggling to pay their bills."

Shadow Communities Secretary Eric Pickles said: "Local government finances are now at risk and people will be concerned about their local services and council tax bills. The Government needs to stop dithering and clear up this uncertainty."

Plymouth Devonport MP Alison Seabeck, who became a Government whip in Gordon Brown's recent reshuffle, warned that the situation was "extremely worrying".

"If the amount is not recoupable... then it will impact on services or potentially it could mean significant projects may have to be changed."

Matthew Taylor, Lib-Dem MP for Truro and St Austell, said: "With news of a massive bail-out for British banks still fresh, it is unfortunate that the Chancellor cannot now guarantee taxpayers' money. That said, it is impossible for the Government to cover other countries' bad debts.

"This inevitably means that at some point in the future services will be hit at both a national and a local level."

However, Mark Wallace, campaign director at the TaxPayers' Alliance, said: "People will be shocked that the councils had this money stashed away in the first place. The fact that they have invested this money and seem to have lost it is even more shocking and is sadly yet another reminder of the poor financial management in local councils."

Read Matt Chorley's blog at www.thisis westernmorningnews.co.uk/mattchorley