Cancel Council Debt

To stave off the collapse of council services the government should cancel local authority debt

The Labour Campaign for Council Housing is working with a number of council leaders and MPs to demand that the government cancels local authority debt held by the Public Works Loans Board (PWLB) as an emergency measure to stave off the collapse of council services. This would give councils £4.5 billion a year extra income.

(See the campaign's statement: https://cancel-local-authority-debt.org/our-statement/ )

The CEO of the Chartered Institute of Public Finance and Accountancy (CIPFA ) warned of councils facing “a financial tsunami of reduced income and increased costs.” He was right. The financial crisis of local authorities is spiralling out of control as councils struggle to respond to the pandemic. The deadly combination of increased expenditure, and collapse of income, comes after of ten years of austerity which has severely weakened local authorities. Austerity is to councils what 'underlying conditions' are to people who are vulnerable to the virus.

The government told councils to do 'whatever it takes' and they would support them. Yet the funding offered thus far falls well short of spending associated with dealing with the pandemic, never mind the big loss of income resulting from the lock-down. Nick Forbes, Leader of the Local Government Association (LGA) Labour Group has warned that unless councils win “proper compensation” then they may be forced into making deeply damaging cuts to service provision in the current financial year. What we are threatened with, this year and next, is a return to austerity, possibly worse than the Osborne version.

Here are some examples of the impact on councils.

·  Research by SIGOMA, the Special Interest Group of Municipal Authorities, which includes big councils like Manchester, Leeds, Newcastle, Leicester and Nottingham, estimates that its 44 member councils will be in the red by £2.2 billion by the end of this financial year. Over all councils this could add up to a £5 billion shortfall in just one year.

·  Liverpool Council may have to issue a Section 114 notice. (This section of the Local Government Act 1988 may be applied when the Chief Finance Officer foresees an unbalanced budget.) The Council has been given £34 million by the government but it estimates expenses and loss of income of £78 million.

·  Liverpool Metro Mayor Steve Rotherham estimates the city region expects the crisis to result in £239 million in lost income and extra expenses over a period of six months. But so far the government has allocated them just £102.4 million in extra funding - only enough to cover the impact of the crisis for less than three months.

·  Bristol council estimates a loss of £80 million.

·  Six Oxfordshire Councils have written to the government warning that some of them will be “financially unsustainable” as a result of the fallout from the pandemic. They predict that some of them could be unable to set a legal budget in 2021/22.

·  Tory council Windsor & Maidenhead (hardly a deprived area) has warned the government that it is unlikely to be able to avoid issuing a Section 114 notice.

·  The Local Government Chronicle reported that five councils (Birmingham, Sunderland, Warwickshire, Solihull and Middlesbrough) have used the Coronavirus legislation to suspend their legal duty to provide social care.

An unprecedented emergency requires emergency measures. One such measure would be the cancellation of local authority debt held by the Public Works Loans Board, currently around £82 billion. This would provide councils with £4.5 billion extra spending power a year (the cost of servicing the debt last year). In itself it would not resolve the funding issues resulting from austerity. However, debt cancellation would be a simple step which would provide significant funding on an annual basis and would help to stabilise council finances. The government itself set a precedent by cancelling £13.4 billion NHS debt.

Debt cancellation would include housing revenue account (HRA) debt. This would provide HRAs with at least £1.25 billion extra a year. As signatory Doina Cornell, Stroud District Council leader, says:

“...when the restrictions start to ease, local government will be a crucial part of the recovery. For my own council alone, cancelling our housing debt for example, which we took on when we acquired our council housing stock, would liberate us to build more council homes, create jobs and invest in our local communities, helping to kick start the recovery.”

Mick Whitley MP, another signatory, has written to the government, with the support of the other 3 Wirral MPs calling for debt cancellation. “Wirral MPs: write off all council debt”

Signatory Matthew Brown, Leader of Preston council, calls for “a new financial settlement”.

“Labour councils have been worst hit by ten years of austerity economics and are now in an even worse position as we rightly intervene to protect our communities as a result of the coronavirus pandemic. Once the pandemic is over there must be no return to normal and we must seek to rebuild our communities as the low paid, less well-off and many in our minority communities have been disproportionately affected by it.

We need a new financial settlement for local government as councils will be at the centre stage of rebuilding local economies from the economic downturn and rising unemployment which will inevitably come. I am proud to support the Labour Campaign for Council housing initiative to cancel all local authority debt. This is needed to ensure local government survives but also so councils can play their role to regenerate communities in future years.”

Radical action is required to prevent a collapse of councils and the services they provide. Labour should demand three things of the government.

1) They must not renege on their commitment to support councils in doing “whatever it takes”. There should be recompense for their increased expenditure and their loss of income resulting from the lock-down.

2) It should cancel the debt held by the PWLB. The extra £4.5 billion a year would enable services to be stabilised and even extra staff employed to enhance services which do not currently cover actual social needs. It would also strengthen the finances of HRAs which are currently grossly under-funded.

3) The “new financial settlement” that Matthew Brown calls for needs to be based on an annual assessment of social needs in each locality (this was abandoned by the coalition in 2013). This can begin to address the local and regional inequalities which benefit those councils with higher council tax income.

Martin Wicks, Secretary Labour Campaign for Council Housing

Visit the website and add your support to the statement at

https://cancel-local-authority-debt.org