The Deepening financial crisis of local government demands a national campaign for adequate funding
The Labour Campaign for Council Housing has a zoom meeting (November 28th 2 p.m.) on the theme of Cancel local authority debt and fund council house building programme. Speakers will include Matthew Brown, Leader of Preston Council, Doina Cornell, leader of Stroud District council, Janette Wiiliamson, Leader of Wirral Council.
When we first raised the issue of cancelling local authority debt held by the Public Works Loans Board, in the the early days of the pandemic, Steve Reed, Shadow Communities and Local Government Secretary, was asked about it in a Labour Party Policy Forum meeting. He said that
- Labour Councils don’t support debt cancellation because funding should be on the basis of need, and
- it would let off the hook those Tory councils that had made reckless financial investments.
We agree that councils should be funded according to annual estimates of need. But pressure needs to be brought to bear on the government to open up negotiations. The coalition government ended annual assessments in 2013.
18 Labour council leaders did support our first debt cancellation statement, and more have supported the idea since. Debt cancellation would come to the aid of Labour councils whose financial circumstances are dire.
When it comes to reckless or injudicious commercial investments it is not just Tory councils that have done that. Croydon Labour council, which has issued a section 114 notice, borrowed £545 million for its building company and property investments in three years. Other Labour councils are in difficulties with their commercial investments, as a result of the pandemic. There has been a widespread move towards commercial investments in the attempt to create revenue to replace fast disappearing central government grant. Coalition and Tory governments are responsible for this because they encouraged councils to become more commercial, allowing them to borrow from the PWLB with no controls.
When the CEO of CIPFA spoke of councils facing “a tsunami of reduced income and increased costs” it was no exaggeration. With a second lock-down the losses will increase further. Events have begun to show the scale of the crisis. These are just some examples.
- Croydon has issued a section 114 notice (freezing most spending) despite making cuts in September including 400 redundancies;
- Nottingham Council has had to sell off Robin Hood Energy with losses of up to £38 million;
- Greater Manchester’s 10 councils have had to bail out Manchester Airports Group to the tune of £260million. Manchester Council is expected to provide £143 million of that. Manchester council is proposing £80 million of brutal savings.
- Luton has had to borrow £60 million to lend to its company which runs Luton airport;
- Norwich has had to borrow £14 million to prevent its building company Norwich Regeneration Ltd from going into liquidation;
- Bristol council has had to sell off its energy company (set up by a previous administration);
- Leeds council is looking at a funding gap of £118 million in 20221/2 and job cuts of 528 posts.
- The County Councils Network (CCN), 32 of whose 36 members are Conservative-controlled, have said just a fifth of authorities were confident they could meet their legal duty to set a balanced budget next year and avoid effective bankruptcy. Over half of its member councils were planning “moderate or severe” service reductions in adult social care, nearly a third were seeking heavy cuts to road repair budgets, and 33% were considering major savings in library services.
- Hull council is has an estimated funding gap of £25 million million for 2021/2. The council leader says that they will not have sufficient resources to carry out their statutory duties.
- Tory Bexley Council has asked for permission to use capital to cover day to day expenditure.
It is surely now clear that emergency measures are necessary to prevent a collapse of local authority services, the consequence of which will be a deterioration in the living conditions of people who will not receive the support they need. We believe the rapidly worsening crisis underlines the need for the series of measures we have outlined which are striking a chord amongst Labour councils. We have suggested that Labour should demand that the government:
- Honour its commitment to fund councils fully for the extra costs of dealing with the pandemic, and the losses of revenue resulting from lock-downs.
- Cancel local authority debt held by the Public Works Loan Board as an emergency measure which would provide councils with an extra £4.5 – £5.5 billion spending power a year, and help to stabilise their finances. The government itself set a precedent when it cancelled NHS debt.
- Begin urgent discussions on a funding system based on an annual assessment of social needs in each locality.
- Provide £10 billion annual grant to fund building 100,000 council homes a year, which is necessary not only to address the acute housing crisis, but will provide economic stimulus as we come out of the pandemic, putting people back to work.
Labour is right to demand that the government fully fund councils for the impact of the pandemic – extra costs and loss of revenue resulting from the lock-downs. But even if we won that, it alone would not resolve the ongoing impact of the crisis which comes on top of 10 years of austerity.
An extra £4.5 – £5.5 billion spending power a year would stabilise council finances and give them the possibility of expanding services while debate on an adequate funding system takes place. We don’t see why the local population, whether they have a Tory or Labour council, should be made to suffer the consequences of their council’s ill-judged commercial activity. It is the poor and those who desperately need services who will pay the price. Debt cancellation is to help these people not councils per se.
The Tory controlled LGA has just called for the government to fund building 100,000 council homes a year, both to deal with the housing crisis, and to provide an economic impetus coming out of the pandemic. This is socially useful production which, as the LGA points out, would have knock-on consequences, saving money because of lower social rent homes, improved health, and providing work to counteract the likely big increase in unemployment resulting from the economic consequences of the pandemic.
Without the measures we are proposing we will see a new phase of austerity in local government which will be socially disastrous, both in terms of the services provided and the impact on the jobs of people who have been praised as ‘key workers’. Labour should be organising a national campaign rather than leaving Labour councils to their own devices in each locality.
Anybody interested in attending the meeting, email us at firstname.lastname@example.org and we will send you the zoom link