We have heard 2 objections to cancellation of local authority debt.

  1. Councils should be funded according to need, and
  2. It will benefit Tory councils that have made risky commercial investments 

We agree that councils should be funded according to an annual assessment of social needs. The coalition government ended this annual assessment and uprating in 2013. They were supposed to look at the question again in 2020 but there is no sign of movement yet. We think Labour nationally and the LGA Labour Group should be pressing for this, but it is not likely to be introduced any time soon, therefore we need emergency action to tackle the financial crisis now.

Preston Council Leader, Matthew Brown who is supporting our campaign wrote this:

“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.”

We can understand Labour councillors being annoyed that some Tory councils that have gone down the commercial investment road might be let off the hook, so to speak, by debt cancellation. However, the reality is that the government is not going to support Labour councils and penalise their own.

Debt cancellation will also have the benefit of writing off the bogus housing revenue account debt which hangs like an albatross around the neck of existing council housing. It would give HRAs at least an extra £1.25 billion a year. This is what Doina Cornell, Stroud District Council Leader, another supporter of our campaign says.

“Increased costs and decreased revenue is hitting local government as hard as businesses due to restrictions to combat the coronavirus, and some local councils are projecting losses of almost all their income for the coming year. At the same time, 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.”

Leicester Mayor Peter Soulsby agrees, saying that cancellation would be “particularly beneficial to the HRA”.

If the government can write off NHS debt, why not HRA debt?

There’s another factor which needs to be taken account of. The collapse of income as a result of the lock-down is not going to end soon. There will be no quick return to levels of income pre-dating the pandemic. We are faced with large scale unemployment which will impact on council incomes and the hang-over from the pandemic will mean millions of people will still be fearful of doing some of the things they did before. So covering the immediate costs of the pandemic, important as it is, will be insufficient.

In conclusion we think Labour should be demanding three things of the government.

1) No reneging on their commitment to support the costs of dealing with the coronavirus pandemic (both additional expenditure and loss of income as a result of the lock-down).

2) Cancel the debt held by the PWLB, giving councils an extra £4.5 billion annual spending power.

3) There needs to be what Matthew Brown has referred to as “a new financial settlement for local government”. This requires funding assessed annually on the basis of actual social needs in each locality, uprated each year.

It would be good if we could win point 1, though it would not address the under-funding of councils resulting from 10 years of austerity. No 3 will not be introduced quickly. So debt cancellation is the easiest and quickest means to providing some financial stability to councils. It is a simple emergency measure for a national emergency. We will just have to grit our teeth if Tory councils get away with their reckless investments.

Debt cancellation would be a real boon for Labour councils, both for their General Funds and their HRAs.