A union has attacked a council’s plan to help ailing businesses by starting a bank using money from its pension fund.

The GMB branded the plans, announced by East Sussex County Council, as utter madness.

Brian Strutton, national secretary for public services at the GMB, said: “This is utter madness.

“We are talking about the local government pension scheme assets that have been built up to provide employee pensions and should be invested properly and efficiently.

“It is not a local politician’s plaything. What they should be doing is concentrating on running core council services properly and not going off on flights of fancy.”

The new bank, if launched, would be set up in partnership with an existing bank to offer services such as loans, credit cards, insurance and savings.

East Sussex County Council is spearheading the plan in the hope West Sussex County Council and Brighton and Hove City Council will also back the venture.

A spokesman for East Sussex County Council, said: “East Sussex, like many councils, has been looking into a variety of different ways to help local residents and businesses through the recession.

One consideration is whether or not councils could create new bank-type institutions to help local small and medium-sized businesses access business credit more easily.

Mr Strutton warned: “This is not dormant money that the council can use for any new idea that occurs to them.

“There are legal limits as to how pension money is invested and it is not in anyone’s interest for these to be flouted. So the message must be hands off and stop this insanity before it gets off the ground.”

According to East Sussex Council leader Peter Jones, the pension fund, which covers East Sussex County Council, Brighton and Hove City Council and several other borough and district authorities, has assets worth £2 billion.

Mr Jones wants to use up to £15 million as start-up capital for the bank.

Mr Jones admitted: “This is high risk and may not work but it is something that is worth giving a really good shot.”