The Treasury on Thursday offered help to town halls facing acute cash-flow problems as a wave of public bodies confessed to “losing” deposits totalling almost £1bn in failed Icelandic banks.

Councils were scrambling to shore up their finances after more than a quarter of UK councils – or 108 such bodies – admitted to placing at least £799m in defunct Icelandic accounts. In some cases, the deposits were equivalent to a tenth of council budgets.