Local Government Finance (Debt Amnesty)

– in the Scottish Parliament on 7 March 2017.

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Photo of Linda Fabiani Linda Fabiani Scottish National Party

The next item of business is a member’s business debate on motion S5M-02900, in the name of Alex Rowley, on “Local Government Finance and the State of the Debt”. The debate will be concluded without any question being put.

Motion debated,

That the Parliament welcomes the work of Unite the Union Scotland in producing its paper,

Local Government Finance and the State of the Debt

; understands that the paper estimates that Scotland’s local authorities, which includes Fife Council, have around £2.4 billion of pre-Scottish devolution debt liabilities owed to the Public Works Loan Board (PWLB), with an average rate of return of 8%; further understands that post-devolution interest rates paid to PWLB are only around half this; notes that pre-devolution interest rates were not independently set by the Bank of England but by the then UK Government; believes that there is a growing consensus regarding the need for action to tackle local authority debt owed to PWLB; considers that Scottish devolution was intended to be a new beginning for Scotland, and notes the view that the time has come for this historic financial burden to be dropped by the UK Government.

Photo of Alex Rowley Alex Rowley Labour

I begin by thanking members of the Scottish Parliament who signed my motion on “Local Government Finance and the State of the Debt” so that we could have the debate this evening.

I also record my thanks to Unite the union in Scotland for all the work that it has done around the issue, and to Unite’s membership, who have campaigned up and down Scotland to raise awareness of the arguments around debt amnesty for public services. A few Unite members are in the gallery this evening and they are very welcome.

In speaking to the motion, I aim to raise further awareness of the campaign for a debt amnesty on pre-devolution council debt. I also hope that we can build consensus in Scotland on the issues on which this Parliament can put pressure on the United Kingdom Treasury in Whitehall to agree a debt amnesty on pre-devolution council debts for Scottish local government.

I hope to gain the support of the Scottish Government for the campaign, and the agreement of the Scottish Government that it will make representations to the UK Treasury for an amnesty for all pre-devolution debt that is owed by councils.

There are two broad reasons for making the claim on the UK Treasury. The first and key reason for putting the case to the UK Treasury must be fairness. Some £2.5 billion of Scottish council debt that is owed to the UK Treasury’s Public Works Loan Board dates back to pre-devolution. Interest rates on those pre-devolution debts are about 8 per cent, but interest rates on post-devolution debts are about 4 per cent, which is the standard rate for a 30-year PWLB loan. That means that Scottish residents are paying 50 per cent more interest on pre-devolution debt to the UK Treasury than we are on post-devolution debt. It means that, on average, Scottish local government is spending the equivalent of 44p in every £1 of council tax that is collected from Scottish residents on servicing debt liabilities. Unite estimates that, of that, 10p in every £1 derives from outstanding pre-devolution liabilities.

In the 17 years since devolution, Scottish councils have sent back a minimum of £3.3 billion to the Treasury in interest payments on pre-devolution debt liabilities alone. I suggest that we have a strong case for pursuing an amnesty on the ground of fairness. I hope that Parliament and the Government in Scotland will join the campaign and make the case to the UK Government for that to happen. There is a strong case to be put to the Treasury based on what is fair, right and just, and we need to make that case.

We must also consider the current financial pressures on Scottish councils and the growing demands that are being placed on public services, which makes the need for agreement to a debt amnesty even more crucial.

A report that was published today by the Accounts Commission makes for very difficult reading and brings home the case for reform and investment. The chair of the Accounts Commission states that

“Councils are increasingly relying on the use of reserves to bridge projected funding gaps.”

Moreover, he states that there is

“a dependency on incremental changes to services, increasing charges and reducing employee numbers in order to make savings. These are neither sufficient nor sustainable solutions for the scale of the challenge facing councils.”

We need to support councils to face up to those challenges, which means stopping the cuts and investing in a more preventive approach, which the Christie commission, supported by all parties in Parliament, advocated.

Pat Rafferty, who is the secretary of Unite the union in Scotland, best sums up the current position of local government in Scotland. He has stated that we are

“Without doubt ... facing a perfect storm of austerity across Scottish local authorities and, left unchecked, thousands of crucial jobs and local services will be further decimated to the point of no return.

We believe these extraordinary circumstances call for special measures and that’s why we are pursuing an amnesty on the pre-devolution debts owed by our councils to the UK Treasury.

An amnesty is a matter of political will and there is certainly precedence, as witnessed by the UK Treasury write-off of a £900 million housing debt in Glasgow City Council—it can be done.”

That is a key point in this debate—“it can be done”. It just requires the political will to make it happen. That is why the debate is important.

As Unite says, a debt amnesty is not the whole solution to the massive challenges that are facing local councils, but would be one of a series of measures that need to be taken to address the financial pressures that councils are under so that we can sustain jobs and services in public ownership for future generations.

I wrote to the Chancellor of the Exchequer and the Secretary of State for Scotland on the issue and got a reply from the Chief Secretary to the Treasury that basically said no, and Mr Mundell did not bother to reply—so, we know their position. However, councils across the UK have been renegotiating debt and interest rates and making massive savings with private lenders, so the idea that the UK Treasury cannot do that is fanciful. Let us firm up our position and our resolve to fight the case for a debt amnesty on the grounds that I have set out.

Photo of Sandra White Sandra White Scottish National Party

I thank Alex Rowley for bringing this debate to the chamber. It is on a subject that not only I but many people, elected and unelected, are very interested in. Mr Rowley’s motion refers to

“around £2.4 billion of pre-Scottish devolution debt liabilities” and, in the last clause, says that the Parliament

“considers that Scottish devolution was intended to be a new beginning for Scotland, and notes the view that the time has come for this historic financial burden to be dropped by the UK Government”.

I agree entirely with what Mr Rowley says, but I think that we have to be perfectly honest in this debate; I remind Mr Rowley that it was a Labour Government that was there at that particular time, and not just before devolution. When devolution came in, why was that never, ever suggested under a Labour Administration? When there was a Labour Government in Westminster, why was it never raised then?

That is something that I have to ask. I am not saying that I am cynical, but we need to ask that. Further on, it was a Labour Government that brought in the private finance initiative, which is costing even more money. I appreciate what Mr Rowley is saying and absolutely agree about the debt, but I have to ask why now, at this particular time—

Photo of Sandra White Sandra White Scottish National Party

If you will just let me finish, Mr Findlay—I am going to quote you as well.

Why, when a Labour Government was there and when, as Mr Rowley mentioned, it was a Labour Government that wrote off the historical housing debt of Glasgow City Council, and transferred the houses to Glasgow Housing Association, which was unaccountable not just to the council but to people whose houses were there as well, was the debt not written off then? Gordon Brown wrote off the housing debt, and the debt could have been written off then. Why was the Labour Government not asked to write off the debt when it wrote off that housing debt? I have to ask that question.

Mr Rowley thanks Unite the union and I absolutely thank it as well. I have been on the picket line with some of the people in Glasgow, who I know, about writing off the debt. I also thank Unison for its briefing, which I will quote from. The briefing refers to public-private partnerships and PFI as an “expensive form of borrowing”—a very expensive form of borrowing. Mr Findlay is also quoted in that same briefing from Unison. He said then:

“It would be financial madness to buy a house on a credit card yet that is exactly what we are doing with PFI and NPD. In some cases—”

Photo of Sandra White Sandra White Scottish National Party

I will let you in in a second.

“In some cases we are paying double digit interest rates on some existing PFI projects”.

Why did Labour bring in PFI projects and why did you not ask a Labour Government in Westminster or a Labour Government here to write off the debt?

Photo of Neil Findlay Neil Findlay Labour

The member mentioned what I said about PFI and non-profit-distributing debt. NPD is the Scottish Government’s scheme, which is PFI by another name. I believe that, irrespective of which Government was in power, we now have a unique opportunity, because borrowing powers are coming to this Parliament and we have historically low interest rates. We have a unique opportunity—we will not have an on-going opportunity—to renegotiate these debts, whether they are historical debts or current NPD debts. We should take that opportunity now.

The Deputy Presiding Officer:

No more than one minute more, Ms White.

Photo of Sandra White Sandra White Scottish National Party

As I said, I appreciate the motion as it stands, but I must still ask why Scottish Labour did not ask the UK Government to write off the debt when there was a Labour Government in Westminster and in Scotland. As Alex Rowley said, the Government wrote off the council housing debt in Glasgow—

Photo of Sandra White Sandra White Scottish National Party

It was possible to do it in that case, so why could it not do it for other debts?

Photo of Sandra White Sandra White Scottish National Party

No, no—your party was in power, and you never wrote to it or asked it to write off the debt. Gordon Brown was in power at that time, yet the Government did not write off the debt. You might call me cynical, but I would like us—

The Deputy Presiding Officer:

Members should speak through the chair, and should do so only when asked, rather than having an individual argument.

Photo of Sandra White Sandra White Scottish National Party

I apologise, Presiding Officer; I did not realise that I was doing that.

As I said, I think that this is a good debate to have. However, I do not understand why the debt could not have been written off when Labour was in power at Westminster and here and why, all of a sudden—apparently because of low interest rates—we are now being asked to take this on board.

The Deputy Presiding Officer:

Well, we have got off to a very consensual start.

Photo of Graham Simpson Graham Simpson Conservative

I hope not to take up too much of your time today, Presiding Officer.

I thank Alex Rowley for bringing this debate to the chamber. Local government finance is always worth discussing and I share his view on that. It is certainly in the news today, as Alex Rowley pointed out. Further, we have seen the timely Accounts Commission report, “Local government in Scotland: Performance and challenges 2017”, which demonstrated what most of us in this chamber realise, which is that local government in Scotland has been squeezed over many years. We have seen a long-term decline in revenue funding under the Scottish National Party. In the next year, total revenue funding will fall by £260 million in real terms, as that report shows. The Convention of Scottish Local Authorities says that there has been a £550 million cut in the local government settlement, and it calls for longer-term planning.

Of course, all that has an effect on jobs and services, and more than 15,000 full-time equivalent jobs have been lost in local government in the past five years. It is pretty depressing.

Photo of Kevin Stewart Kevin Stewart Scottish National Party

Does Mr Simpson accept that, by 2019-20, the Scottish Government’s discretionary budget will have been cut by £2.9 billion since 2010-11? That is 9.2 per cent lower in real terms. His Government is slashing our budget. Does he not realise that that has an effect on every public service in Scotland?

Photo of Graham Simpson Graham Simpson Conservative

That was more of a speech than a question. In any case, its premise was entirely wrong, because, as the Fraser of Allander institute has pointed out—and as Derek Mackay’s figures show—there has been an increase this year in money coming from the UK Government. That is why my colleague Murdo Fraser has described Mr Mackay as a very lucky man. He is indeed, yet still he has chosen to cut local government funding.

The thrust of what Alex Rowley is asking us to consider concerns historical debt. However, there is a bit of a contradiction between Alex Rowley’s motion and what Unite calls for in its paper, which I have read and found interesting. It seems to me that the paper is calling for an amnesty on the interest, but Alex Rowley appears to want the debt to be written off entirely. His motion does not mention an amnesty on interest. I am not really clear where he is coming from.

It would certainly be irresponsible for us to call for £2.4 billion of debt to be written off on the day before the UK budget. Perhaps that answers Sandra White’s point.

Photo of Kezia Dugdale Kezia Dugdale Labour

Does Graham Simpson recognise that Unite Scotland is also asking for the reprofiling of the debt? As a fiscally conservative Conservative, does he accept the merits of using the fact that interest rates are at an all-time low to save Government and local government money? Surely a fiscally conservative Conservative can support that.

Photo of Graham Simpson Graham Simpson Conservative

I am merely trying to get the Labour story straight in my head, because I am not really clear where Labour is coming from. If Labour is asking for £2.4 billion of debt to be written off, that strikes me as somewhat irresponsible; if it is asking for an amnesty on interest, that is an entirely different matter.

Alex Rowley may want to act like a Labour chancellor, but we will certainly not play that game. I have checked with COSLA. It has made no representations on the matter at all, although it has some sympathy, of course. If any representations are to be made to the UK Government, COSLA is probably the group to make them. I note that Alex Rowley has made representations himself. He should probably use the Scottish Government if it is so minded. It is certainly necessary to ask first, but we need to be clear what Alex Rowley is calling for.

Photo of George Adam George Adam Scottish National Party

I thank Alex Rowley for bringing the debate to the chamber because, like me, he is a former councillor, and we have probably heard debates about funding in local authorities more often than both of us care to remember. When I listened to my colleague Sandra White, I thought that an important point is that the debate sounds like one that we had in pre-devolution days. There is merit in what we are discussing. There is merit in the idea that we have to talk to Westminster and ensure that we get something out of the situation.

At the heart of the debate is the key point that local government has financial autonomy. That must continue but, for it to do so, we need to ensure that Westminster, as the body that gave the loan, does something. I have concerns about that.

Local councils must be held accountable and allowed to pay off their debts, but they should get a bit of flexibility. Unite’s report shows some of the historical debt. For Renfrewshire Council, which covers my area, the pre-devolution figure is £97 million and, post-devolution, it is £165 million. As former councillors in the chamber will be aware, there is a point at which an officer usually says, “We do not have the capacity for that project, councillor. We do not have the funding capability to do it because you are carrying this debt.” That is similar to what Sandra White said on housing. For years, councils carried debt for houses that, in some cases, had already been knocked down.

It is important that councils get flexibility. I welcome everything in the motion, but only the lender of the loan can write off the debt, so we would have to appeal to the UK Government’s better nature. Given all the issues that we currently face with Westminster at the helm, that is quite a difficult ask. As a former car salesman, I believe in negotiation, and I think that we could probably find common ground somewhere on the issues. However, if we do not get it right, it will hit our poorest areas because if, for the sake of argument, we ended up with the Scottish Government trying to find a way to have an amnesty of its own, that would affect the budget that we have already settled with local government.

My concerns are about Westminster. Members might call me a cynic, but I have no doubt that any plea to Westminster to write off pre-devolution debts would be met with ridiculous terms and conditions, and an amnesty could require the Scottish Government to reduce its budget dramatically, which would devastate agreements that have already been made. Should Westminster not be more agreeable, further cuts to offset council debts could affect the £120 million extra that has already gone to local government.

Any change to the debt would have to be dealt with carefully, and that is my biggest concern. When we do the negotiations, we need to deal with that. It is important for us to have the debate with local government and Westminster, because the issue affects the delivery of the services that everybody in our constituencies and communities uses.

Although it is extremely important for us to have the debate, we need to explore all the options and to do so in a non-confrontational manner. From listening to Mr Simpson’s remarks, I thought that it sounded as if the Tories at Westminster do not want to have an open debate.

Mr Rowley stated that he has ideas, and the Scottish Government has ideas, but we need to ensure that Westminster buys into the debate. If we do not get it right, we will cause more chaos and more financial troubles for our local authorities, and none of us wants that. Let us have the open and frank discussion, and let us see whether there is the capacity for us to do something about the issue.

Photo of Alexander Stewart Alexander Stewart Conservative

As I am still a serving councillor with Perth and Kinross Council, I refer members to my entry in the register of members’ interests. I thank Alex Rowley for securing this debate on the debt that local authorities in Scotland owe. I might not agree with all the conclusions that are in the paper that Unite the Union Scotland published, but I acknowledge that it makes a strong case that many councils face serious challenges in funding their public services. As a councillor, I have seen that in full.

The £2.4 billion of pre-devolution debt that is owed to the Public Works Loan Board is a not insignificant amount of money, but the total debt that Scotland’s local authorities have accrued is about £13.6 billion. That has contributed to making local government debt per household in Scotland almost twice the figure for England and Wales.

However, the greatest financial pressures that our local authorities face result from the lack of sufficient funding from the Scottish Government, which has made it necessary for councils to borrow more. Audit Scotland revealed that local government has suffered a 10 per cent real-terms cut in funding since 2010-11. That is the real challenge that local authorities face, which the Accounts Commission has recognised.

Photo of Kevin Stewart Kevin Stewart Scottish National Party

Will Mr Stewart recognise that the reduction in local government funding is about the same as the reduction in the Scottish budget overall, which is thanks to numerous Tory chancellors, who have slashed Scotland’s budget by £9.2 billion up to 2019-20? Do you recognise the effect of your chancellor’s actions on the budgetary position that we are in?

Photo of Alexander Stewart Alexander Stewart Conservative

Mr Stewart, as you have heard many times before from our benches, we know, and you also know, that there has been an increase in funding.

Photo of Alexander Stewart Alexander Stewart Conservative

I am sorry, but it is true. You are in a better position today than you have ever been, because of the Barnett consequentials and all the rest of it. You are the people who have attacked local government in Scotland while you have been in charge for the past 10 years.

The Deputy Presiding Officer:

I remind members to speak through the chair.

Photo of Alexander Stewart Alexander Stewart Conservative

The Accounts Commission’s report makes it clear that the decisions of the SNP and Labour to raise council tax in some areas by up to 3 per cent will “have a limited impact” on council resources. It is worth bearing it in mind that the debts of the 32 local authorities across Scotland range from about half to more than one and a half times each council’s annual income.

Different councils have different ways of dealing with the challenges, and we have seen that in savings and reorganisation. Councils can benefit by learning from one another through examples of best practice. Audit Scotland has stated that only a handful of councils have a rating of strong financial management, which speaks volumes about the number of councils that do not have strong financial management and the difficulties that they face. I have said that councils can learn from one another. However, efficiencies, savings and workforce management planning can only go so far before the resources are depleted and we need to take extreme measures.

At a time when our councils are facing increasing pressure with an ageing population, and as their workloads increase, we need to do all that we can to adequately fund councils and allow them to continue to provide high-quality public services without the need for significant borrowing. The Scottish Government urgently needs to rethink its approach to local government.

The Deputy Presiding Officer:

I will let the minister come back to his seat and perhaps apologise to us for having left the chamber.

Photo of Neil Findlay Neil Findlay Labour

I declare an interest as a member of Unite the union.

I was a councillor for nine years, and I have seen at close quarters local government’s capacity to change people’s lives for the better. It breaks my heart to see what is being done to our councils, and I am thoroughly depressed as a result of some of the contributions that I have heard.

Unite the union has done a very good piece of work and has exposed an 8.5 per cent cut in council budgets over the past six years alone. We have to remember that those cuts impact on the services that civilise our society, educate our kids, care for our elderly and keep our communities safe and clean. That is what local government is all about. If we combine that with retention of a regressive system of local taxation, we see real tragedy—I use that word advisedly—occurring because local government is in the front line of the fight against poverty and inequality in our communities.

Councils have lost tens of thousands of jobs, but there has been no task force and there have been no emergency debates or talks of crises from the Government; there has just been denial, and jobs have been lost hand over fist as services have been cut. My local authority in West Lothian has been starved of £90 million. Similarly, there have been large cuts in Midlothian. There have been even worse cuts in Edinburgh and large cuts in every other council area in Scotland. On top of that, the UK Government is ripping councils off with high interest rates on historical debt.

I say to Ms White that I do not care whether the Government is red, blue, yellow or whatever; I would raise this issue with it, because it is fundamental to the proper running of local government.

Photo of Sandra White Sandra White Scottish National Party

On what I was trying to get across, you were a local councillor and people were elected. Why did you not ask the Labour Government that was in power here to write off the debt or the interest rate?

Photo of Neil Findlay Neil Findlay Labour

You have made the assumption—

The Deputy Presiding Officer:

Will members please remember to speak through the chair? Members should also wait until their name has been called before they start to talk again.

Sit down, please, Ms White. I call Mr Findlay.

Photo of Neil Findlay Neil Findlay Labour

I am sorry, Presiding Officer.

Ms White has made the assumption that we did not lobby to do those things when Labour was in power. She is wrong about that; the issue has been on the agenda for many years and has not just now come to our attention.

As I was saying, on top of the cuts to local government, the UK Government is ripping off councils through historical debt. I do not know anyone who currently receives 8 per cent interest on their bank account balance. Maybe Mr Simpson—and some of the people who manage his finances—does through his expansive portfolio of shares in whatever, but I do not know any normal person who gets 8 per cent interest.

Photo of Graham Simpson Graham Simpson Conservative

Mr Findlay has no idea whatsoever about my personal finances. I do not have a vast portfolio of shares. Perhaps he would like to retract what he said.

Can Mr Findlay be any clearer than Mr Rowley was? Is Labour asking for a total write-off of £2.4 billion or is it backing Unite in calling for a debt-interest amnesty? Those are two very different things.

Photo of Neil Findlay Neil Findlay Labour

I withdraw what I said and apologise for it.

If Mr Simpson is saying that he will support us in getting rid of the interest rate part of the debt, let us go for that as a starter. If he wants to join us and call for the eradication of all the debt, I will be quite happy with that, as well. Let us put hands across the chamber and join on whatever Mr Simpson wants to get rid of so that we can sign a letter and send it off to the UK Treasury today. I am sure that Mr Simpson will be the first out with his pen.

There is also a case for us to look not just at this debt, but at the private finance initiative and non-profit distributing debt that Sandra White mentioned—the past PFI debt and the current NPD debt—irrespective of which Government accumulated that debt.

We currently have historically low interest rates and we are getting borrowing powers for the first time. There is an opportunity to renegotiate the debts. There are examples from England in which doing that has freed up tens of millions of pounds for public services.

My plea to the minister is to ask why we are not doing that, too. We should be setting up a debt recovery unit in the Scottish Government and looking at NPD and PFI debts case-by-case—and not taking a blanket approach—to see whether they can be renegotiated to free up more money for local government. Imagine what the two things combined would do for the finances of education and social work, our local environment and for rebuilding the services that are being cut year in and year out in our communities.

Photo of Andy Wightman Andy Wightman Green

I, too, thank Alex Rowley for initiating this important debate. I also welcome Unite’s report “Local Government Finance and the State of the Debt” and agree with the case for a debt-interest amnesty.

I will stress two main points. The first is to ask why we should limit action to pre-devolution Public Works Loan Board debt; the second is to talk about public debt in an age of austerity and the consequences of an amnesty.

In the report “Local Government Debt in Scotland—report for the Green MSPs”, which the Scottish Green Party published in November 2016, a month before Unite’s report, we identified total debts of £11.5 billion. At £12.1 billion, Unite’s figure is much the same.

There are three elements to the long-term debt: pre-devolution Public Works Loan Board debt; post-devolution Public Works Loan Board debt; and things called LOBOs, which I will come to in a second.

Of the £9 billion Public Works Loan Board debt, about 20 per cent—£2.4 billion—is pre-devolution debt and 80 per cent is post-devolution debt. A further £2.4 billion of debt, which we identified in our November 2016 report, is lender option, borrower option loans—so-called LOBOs. Those are long-term loans—often lasting 40 to 70 years—that were initially offered on teaser fixed rates that typically undercut PWLB rates. In the 2010 spending review, Public Works Loan Board rates rose from 0.15 to 1.0 per cent and were then reduced to 0.8 per cent following the 2012 budget. LOBOs appeared just as the PWLB rates were being hiked. It would be instructive to delve deeper into that coincidence, because today some councils are facing 7 to 9 per cent interest rates on LOBOs. Greens regard LOBOs as illegitimate, odious and unsustainable—it is not even clear how much is being paid in debt. The issue is not just about LOBOs, but about post-devolution PWLB debt.

In 2015-16, Scottish local authorities paid almost £1 billion in interest to the Public Works Loan Board. Unite is proposing an amnesty for only 20 per cent of that figure. In our report, we suggest that there is a strong argument for writing off all post-devolution debt—PWLB debt and LOBOs. I do not know why, if the case can be made—and it can—for pre-devolution debt, the same case does not exist for post-devolution debt.

Much of the debate is a consequence of the age of austerity—it is a consequence of the fact that the Government bailed out the banks to the tune of hundreds of billions of pounds following the financial crash.

As we saw from the Accounts Commission report that was published this morning, local authorities face a very challenging few years ahead. Debt issued by the PWLB is owned by the UK Government; it is public debt. Debt forgiveness costs the Government nothing, because the debt cost the Government nothing to issue. Therefore, there is a case for going beyond an amnesty and writing off all the debt. In contrast to what Sandra White talked about in relation to previous Labour Governments, this moment is significant, because we are living in austerity and the real challenges that local government faces. There is a clear moral, economic and political case for writing off all the debt. However, I am left with a question: why is Unite’s focus only on pre-devolution debt? As I said, it would cost the Treasury nothing to write off the debt, and doing so would improve local government’s balance sheet by £9 billion and its revenues by hundreds of millions of pounds a year.

Debt is an important issue. Other important issues are the future of local taxation, the need to scrap the regressive council tax and the future of local government finance as a whole. Later this week, the Greens will publish proposals on how to strengthen the local government financial settlement.

It is clear that we, Unite and Labour agree on debt forgiveness. However, we argue that we should go much further.

Photo of Kevin Stewart Kevin Stewart Scottish National Party

I welcome the opportunity to respond on behalf of the Government to today’s motion on local government finance and the state of the debt.

The motion asks the Parliament to agree that

“Scottish devolution was intended to be a new beginning for Scotland”, and to note

“the view that the time has come for this historic financial burden to be dropped by the UK Government.”

Since the motion was lodged, the Cabinet Secretary for Finance and the Constitution has announced—on 2 February—that local authorities will benefit from additional investment of £160 million to support local services. If we take next year’s local government finance settlement and include the extra £160 million and the other sources of income that are available to councils through reforms, the setting of council tax and health and social care integration funding, the overall potential increase in spending power to support local authority services amounts to more than £383 million, or 3.7 per cent, in 2017-18 compared with this year. That is despite the Tory austerity to which Tory members are unwilling to admit. In the debate, Tory members failed to say that, as the Fraser of Allander institute has pointed out, there is a difference between discretionary spend and spending over which we have no control.

I turn to some of the detail in the various reports on the issue. I read with interest the Unite paper, “Local Government Finance and the State of the Debt”. I have listened to the debate, and I thank Mr Rowley for bringing the matter to Parliament for discussion. I am happy to support the terms of his motion. Of course I would welcome an amnesty on pre-devolution debt or even a write-off of the whole amount, as that would free up resources to support investment in the services that our local government partners deliver.

However, we need to be mindful of the likely UK Government reaction to such a request. I do not think that it would be particularly favourable. If we thought that there was any prospect of securing some concession from the current UK Government, we would have no hesitation in making an approach. I think that all members know, sadly, that the reality is that there would be a very negative reaction from the UK Government, for reasons that I will develop.

The Unite report makes a number of relevant points, on which I want to reflect. First, the report notes that the pre-devolution debt is unique, as it carries, at 8 per cent, such a high interest rate. Unite compares that with the current rate of 4.4 per cent that the UK Government charges on loans from the Public Works Loans Board. The pre-devolution period was a time of high interest rates. Members can probably all remember the 1980s and early 1990s, when interest rates rose to nearly 15 per cent. Although the pre-devolution debt is unique, given that average rate of 8 per cent, devolution came at a time when rates were falling—a trend that has continued.

I suspect that HM Treasury would inevitably attempt to argue that to be able to lend to local authorities central Government itself needs to borrow at the prevailing rate. It would say that comparing rates from the late 1990s, when interest rates were higher, with current interest rates, which are at an all-time low, is not relevant when we consider pre-devolution debt.

Analysis shows that nearly half the total outstanding pre-devolution debt of £2.5 billion was borrowed in 1997 and 1998—that is, immediately prior to devolution.

Further, 99 per cent of the pre-devolution debts are interest-only loans. I would expect the Treasury to argue that that means that local authorities have not made any repayments on those loans since they took them out prior to devolution, and they will not repay any amounts until the maturity date of the loans. Borrowing on those terms was a decision that was taken by each local authority at the time. We also have to bear in mind that, had the councils chosen to borrow on a repayment method, the value of the outstanding debt and the associated interest costs would now be lower.

Local authorities have had borrowing powers for a significant number of years, and borrowing decisions are rightly made by each local authority, as Mr Adam pointed out. Central Government does not require them to borrow; it is a decision that they take for themselves. Of course, they employ professionally qualified staff and often use professional Treasury advisers to manage and advise on their Treasury management strategies.

Photo of Neil Findlay Neil Findlay Labour

I thank the minister for letting me in at the last minute. Let me summarise what he is saying. First, he does not think that the UK Government is going to do anything so he is not going to speak to it, and, secondly, it is all local government’s fault for negotiating bad deals in the first place. Does that summarise what he has said so far?

Photo of Kevin Stewart Kevin Stewart Scottish National Party

If Mr Findlay listens to the conclusion of my speech, he will find out exactly what I am saying, just as he would have done if he had listened to the beginning of it.

To go back to Treasury management strategies, the types of loan and the period of any loan are, therefore, rightly all matters for each local authority.

It is important to say that, by providing this analysis, I am not in any way defending the debt costs that are associated with the pre-devolution debt. I am simply pointing out the reality of the likely stance that the UK Government would take. I too would whole-heartedly support any moves that would deliver a reduction in those costs if such a reduction were possible.

I also believe that, even if the UK Government was minded to offer any concession, that would not come without catches. I would expect it to say that it would be up to the Scottish Government to provide an off-setting reduction to our budget. That would remove much-needed resources at the very time when the UK Government has already imposed cuts to our budget that will mean that, by 2019-20, the Scottish Government’s discretionary budget will be £2.9 billion, which is 9.2 per cent lower in real terms than it was in 2010-11.

To conclude, although I too would like to see an amnesty for—or a write-off of—pre-devolution debt costs, for the reasons that I have outlined, I cannot see the UK Government agreeing. I wish things were different.

Meeting closed at 18:23.