ICELAND has agreed to repay some of the billions of pounds that the UK paid out to British savers of collapsed Icelandic banks last year.

However, no agreement has been reached that will see charities who invested in Iceland's high interest accounts, such as Winchester's Naomi House, get all their money.

The children's hospice had £5.7million in the failed Icelandic-owned bank Kaupthing and has been told it might only get half its savings back.

Last October Kaupting and another of Iceland's leading banks Landsbanki collapsed and were taken over by the country's government, wiping out billions of pounds of deposits held by British savers.

Prime minister Gordon Brown used anti-terrorism legislation to seize Landsbanki's UK assets and the Treasury promised to reimburse savers in full - costing the British taxpayer £7.4bn.

Now Iceland has agreed to pay back £2.3bn to the UK in the first major step towards the government recovering all the money.

The Icelandic government has said it would treat the cash as a loan from Britain that it would pay off over 15 years - with repayments being taken from Landsbanki's frozen UK assets for the first seven years.

Meanwhile Winchester City Council which invested £1m with another of Iceland's failed bank, Heritable, has been told it will receive 70 per cent of its money back.