DODGY GEYSERS; CREDIT CRUNCH CRISIS It gets worse.. Brown fury at Iceland's UK losses.

Byline: BY JAMES LYONS POLITICAL CORRESPONDENT

PREMIER Gordon Brown last night declared a cold war with Iceland as its banking crisis threatened to swallow pounds 1billion of taxpayers' cash.

In total, 108 councils have pounds 799million in crashed Icelandic banks. Some are desperate for the cash to pay their staff's wages.

Charities, including a children's hospice, have revealed they have pounds 230million invested. Cats Protection has pounds 11million tied up.

But with Iceland's banking system bust, there is virtually no prospect of getting the cash back.

Furious Mr Brown is freezing Icelandic assets and has threatened to sue its government.

He has guaranteed pounds 4.6billion in personal savings accounts but not corporate investments.

He said: "What happened in Iceland is completely unacceptable.

"I've been in touch with the Icelandic prime minister. I said this is effectively illegal action. We will take further action wherever that is necessary to recover money."

He added: "This is fundamentally a problem with Icelandic-registered financial services authority - they have failed not only the people of Iceland; they have failed people in Britain."

The crisis has put relations with Iceland on the worst footing since the cod wars over fishing rights which dragged on until the 70s.

The Icelandic government accused Britain of using antiterrorist laws to seize its UK assets.

Prime Minister Geir Haarde said: "That was not very pleasant. I'm afraid that not many governments would have taken that very kindly, to be put in that category." Troubled President Ragnar Grimmson is in hospital having heart treatment.

Iceland suspended share trading yesterday amid fears the country would go bust.

Among the public bodies hit in Britain are police authorities which have pounds 100million deposited and Transport for London pounds 40million.

Ministers ruled out covering councils' costs but will give "appropriate"

help to those severely hit.

One unidentified local authority has had to scrape together pounds 20million to pay workers' wages.

Unison said: "The Government must step in. We cannot allow workers to be left penniless, whilst the bankers who caused this get telephone number pay-offs."

Naomi House hospice in Winchester, Hants, is owed pounds 5.7million. Claire Bates, whose son Noah, five, stays there said: "We, like dozens of other families who benefit from this vital lifeline, really hope the money can be recouped."

The FTSE 100 finished at a four-year low of 4313.8 points yesterday - a 1.2 per cent fall. The Dow Jones fell to 8,579.19, down 7.3 per cent, to its lowest level since 2003.

OFF SCALE

THE scale of the crisisbecame clear when the National Debt Clock in New York ran out of digits. US debt stands at 10.2 trillion dollars.

KNOT GAIN

TIE maker Peckham Ryehas seen sales soar 19 per cent in two months as workers smarten up. It said: "Making a good impression's important."