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Covid-19 crisis creates a compelling case to cancel local authority debt

Cancellation of councils’ debts would free up desperately needed resources amid this unprecedented pandemic, says MARTIN WICKS

TAKING on more debt is not the only way to create spending power. Debt cancellation, for instance the debt owed by local authorities to the Public Works Loans Board (PWLB), would provide a huge increase in spending power because they would no longer have to repay loans or interest charges. 

Last year local authorities paid around £4.5 billion to the PWLB in loan repayments and interest charges. 

Overall, local authorities have around £77bn in debt held with the PWLB. 

Such a proposal might have seemed “extreme” before the Covid-19 crisis erupted. However, £77bn is small beer compared with the hundreds of billions in the government's emergency measures.

The financial crisis of local authorities resulting from a decade of deep cuts is being exacerbated by the coronavirus crisis. 

There is likely to be a serious spike in rent and council-tax arrears as countless people, especially those with no savings, will be unable to pay all their bills, while struggling to feed their families. 

Millions of people are losing their jobs or their income if they are stood down, and statutory sick pay is too low to sustain them. 

Around two million people do not even qualify for it and the rate has not been raised a penny. 

While the government has promised councils an extra £1.6bn, this is nowhere near what is required.

The Local Government Association is reporting that the Coronavirus Emergency Bill will suspend all legal entitlements to adult social-care needs.

“Entitlements under the Care Act 2014 will be suspended so councils are not required to meet all adult social-care needs and could opt to delay assessments to prioritise ‘the most urgent and serious’ cases, under measures in the proposed Emergency Coronavirus Bill.”

This must be opposed. We know that as a result of 10 years of austerity, councils have for a long time only provided support for the most “severe” cases. 

In practice this means that many people who need help do not get it. To suspend councils’ statutory responsibility will make a bad situation even worse.

Included in the £77bn local-authority debt is that held by housing-revenue accounts. 

This is the bogus debt that Labour was committed to review in its general-election manifesto. 

Around £26bn of it is held by the PWLB. This is not genuine borrowing but the result of Treasury “creative accounting.” 

Council tenants have paid more rent than the historic borrowing costs for past building programmes.

Cancellation of this debt would mitigate against the impact of the coronavirus economic crisis — many tenants may find their income collapsing as a result of the closedown and be unable to pay their rent. 

Council housing departments are currently only doing emergency repairs, so there will be a very big backlog of work building up.

Debt charges for Housing Revenue Account debt are around £1.25bn a year for English local authorities. 

Debt cancellation would make this amount of money available to them. All their rent income could be spent on existing homes and for some new building. 

This extra money would be no substitute for central government grant for housebuilding, but it would significantly improve their finances. 

Grant to the level of Labour’s commitment of £10bn a year would be needed for a large-scale council-house building programme. 

Such a programme would not only be socially useful but would put back to work building workers who have been laid off.

While such radical action as debt cancellation might have seemed “extreme,” in the current situation it is eminently achievable. 

Indeed it makes more sense than increasing borrowing, which will guarantee extending austerity rather than ending it.

In 2013 the coalition government broke the link between funding and an annual estimate of social needs in each locality. 

It will be necessary to re-establish this link and uprate it annually or local government services, other than child and adult care, will disappear. 

And the quality of care for those two will continue to deteriorate. Cancelling the £77bn debt would open the way to councils being able to stabilise and grow their services in line with social needs.

Martin Wicks is secretary of Swindon Tenants Campaign Group.

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