Forget tax hikes: plan B is citizens' debt audits

Before raising taxes, local councils should look seriously at auditing their astonishing debt repayments.

Joel Benjamin
2 March 2016

City of Edinburgh Chambers, by Ronnie Leask, CC BY-SA 2.0

Like that most cherished of British institutions, the NHS, local government in the UK is on borrowed time. The local government patient is lying motionless on its death bed, with George Osborne poised to turn off life support switch.

Nowhere is the crisis in UK local government more apparent than in Scotland, where Moray Council recently hit the headlines for threatening to raise deeply regressive council tax levels by a whopping 18%.

The Tories have set a trap for English local government, slashing grant funding 64% from 2010-2020, freezing council tax, while claiming to “devolve power” to Town Halls – offering cities the ‘freedom’ to choose between cutting services, or hiking unpopular and regressive council tax to save them.

As with Jeremy Hunt and the junior doctors strike, Osborne is playing politics, creating a smokescreen, to divert attention from the impact of Treasury policies, which will end in bankruptcy and the forced privatisation of local services.

Back in 2010, we were informed by George Osborne austerity was to pay down the debt. It has since doubled. David Cameron told us: “we’re all in this together.” Through “austerity” – the wealth of the richest in society has also doubled.

Against the ebb tide of funding cuts from Westminster, and the threat of local service cuts in town halls like Edinburgh, the Scottish Labour party have proposed to raise income tax to plug the gap in funding and prevent job losses and service closures.

In reality, the gap between what Osborne has cut from Town Hall funding and what can realistically be made up from local taxation looks increasingly stark, so we are told hikes to income taxes are also now required.

Total grant allocation to Scottish local government in 2016-17 will be £10,152.3m. A substantial reduction on the 2015-16 grant of £10,756.7m – more than a 7% reduction in real terms. A year-on-year cut of £604m.

Common Weal’s head of policy and research Ben Wray has written up the implications of Scottish Rate of Income Tax (SRIT) policies heading into the 2016 Scottish elections, as the storm clouds over local government funding gather.

Scottish Labour propose a 1p rise across all bands with a £100 rebate for those on low incomes, those earning £20,000 or less.

The Scottish Liberal Democrats are also proposing a 1p across the board tax rise, while RISE is looking towards the Scotland Bill, proposing a big tax hike for the richest Scots from 45 to 60p income tax on the top rate.

HMRC have estimated Scottish Labour’s proposal would raise £475m, and the rebate for those on low incomes is set to cost £50m. The policy would therefore raise £425 leaving a funding gap of £179m, which would likely mean hikes to regressive council tax.

But before Scottish residents sign up to income and council tax hikes, it’s worth pausing to consider what the local service cuts Scottish Labour, the Lib Dems and Rise want to avoid actually look like for Scottish town halls?, and what some of the alternatives to more taxation might be..?

Edinburgh’s council are proposing to shed 2000 jobs from the workforce over the coming year, with £141m cuts to services over next 4 years (around £30m in 2016/17) with a further 2000 job cuts expected in the Edinburgh voluntary sector as grants are cut by at least 10%.

Unsurprisingly, the tax hike vs austerity cuts issue is proving highly controversial, given the Tories have effectively framed the argument meaning we either accept local service cuts, or agree to tax hikes.

The recent debate on twitter between Ann Pettifor and Adam Ramsay is illustrative of the false choices being presented by Westminster and Holyrood. rises in an economy weakened by falling oil prices, is just another name for austerity...

— Ann Pettifor (@AnnPettifor) February 2, 2016

But there are other options on the table for Scottish politicians that would avoid local service cuts AND avoid tax hikes for Scottish workers.

For the past two years, I have been researching borrowing undertaken by UK local government, both from the HM Treasury in the form of loans from the Public Works Loan Board (PWLB), and from private banks, in the form of PFI and LOBO loans, with research and activism collective Debt Resistance UK.

Put simply, the interest rates on both PWLB loans, and on LOBO loans and PFI have been rigged in favour of HM Treasury and the City of London banks, and the interest repayments are now crippling UK local government.

It’s the same story right across the Eurozone.

On the 21st of February 2016, Debt Resisters UK and other grass roots groups and NGO’s met in Madrid, to discuss solutions to Europe’s debt crisis. The Plan B for Europe manifesto reads as follows:

“Europe’s movements have been clashing with the ensemble of institutions and policies which today constitute the European Union. The deeply anti-democratic nature of these institutions reflects their original and current purpose: to serve the interests of the corporate and financial sector and the various elites, constituting today’s oligarchies. They operate in darkness and opacity, out of view of Europe citizens.

They are subservient to the corporations and financial firms that deploy armies of lobbyists. They are negotiating new treaties in the name but against the interests of Europe’s peoples.

We demand transparency to shed light on how they reach decisions affecting our lives.

We challenge the most unrealistic and irrational claim of all: that Europe can repay its public and private debts.

We affirm the sovereign right of the people to audit the debt and to refuse to repay illegitimate and illegal debts.”

Back in Edinburgh, Unite Scotland recently crunched the numbers on Scottish council tax income vs the amount in interest paid back to Treasury and the banks each year.

Screen Shot 2016-03-02 at 10.57.42.png

On average, 42% of the money raised locally through council tax is paid straight back to Treasury, or to City of London banks, as repayment for LOBO loans or PFI.

At Glasgow City Council, 55% of council tax income is spent on servicing interest on debt, not funding local services. For Comhairle nan Eilean Siar - the Western Isles Council in Stornoway, the debt interest figure is a staggering 103% of council tax income.

Almost £900million is paid in annual interest on Scottish local government debt, and such figures are clearly unsustainable.

Staring down the barrel of looming cuts in Edinburgh, where 50p in every council tax pound is returned to the Treasury or the banks, Unite Edinburgh Secretary Brian Robertson said:

"The City of Edinburgh Council is in dire straits financially. Largely as a result of austerity measures from the UK government our council is being forced to drastically reduce and cut services and jobs. Local Authorities across the UK are seeing similar cuts to their budgets and reacting in the same way.  A few years ago, when the banks got into trouble, the public sector bailed them out. 


“It's high time the banks returned the favour by, at least, lowering the interest rates they charge Local Authorities. A degree of decency from our lenders would go a long way towards helping us keep our services to the most vulnerable people in our city, as well as maintaining standards in services to the whole population such as street cleansing and refuse collection."

Rather than arguing over whether to raise income or council tax, the debate we ought to be having is it this:

Is it sustainable to be paying almost 50p in every pound raised through local council tax, to servicing interest on debts owed to banks and our own Government?, and;

Should councils and taxpayers be forced to accept tax hikes and borrowing more money, to offset cuts caused by bailing out criminal too big to fail banks, that hold society to ransom and block financial sector reform?

By the end of this decade, a staggering 1 million UK public sector jobs will have disappeared to pay for the bankers crisis.

Whilst local authorities and NHS Trusts, crippled by George Osborne’s austerity stagger towards bankruptcy and privatisation, none of the promised reforms to banking structure and culture have been implemented, and another financial crisis appears imminent.

At a speech to the recent Unite National Conference – Scottish Labour leader Kezia Dugdale called for an amnesty on all council Public Works Loan Board interest repayments to Treasury.

Such intervention by a Labour leader is welcome, but Dugdale needs to go much further. Research on PWLB lending by journalist Nicholas Dunbar suggests Labour, Lib Dem and SNP councils are being systematically ripped off by the Treasury.

Screen Shot 2016-03-02 at 10.55.30.png

Before another penny is paid back in interest, the PWLB, LOBO and PFI bank debts described crippling our public authorities need to be tackled head on.

According to Jean Shaoul, professor emerita at Manchester Business School, PFIs have been: “an enormous financial disaster in terms of cost”… “Frankly, it’s very corrupt... no rational government, looking at the interests of the citizenry as a whole, would do this.”

The price tag of the UK’s 720 PFI contracts – £310bn – is more than four times the budget deficit used to justify austerity cuts to government budgets and local services. Scotland has the highest PFI debt per capita of anywhere in the world.

Before we entertain the idea of agreeing to tax hikes to preserve local services,

UK Public Sector bank debts should be independently audited, and allegations of mis-selling and the impacts of recent LIBOR interest rate and foreign exchange rigging on these deals forensically examined in a court of law.

Green Party MP Caroline Lucas recently visited Greece with the Greece Solidarity Campaign and former speaker of the Greek parliament Zoe Constantopoulou – and learnt first hand of the work of the Greek Public Debt Truth Committee.

The Greek Debt Committee’s preliminary report, released in May 2015 found that much of the Greek debt was illegitimate, odious and illegal and the interest on the loans should not be repaid.

By forcing the Greek people to meet crippling interest repayments to the Troika of the ECB, IMF and EU, gross human rights violations have been committed, as healthcare, workers conditions and pensions have been stripped to the bone.

The report found that most of the Greek debt could be attributed to the “snowball effect” of compounding interest on high interest loans, along with a gap in government revenue created by tax avoidance, which needed to be plugged by further borrowing.

With Google’s sweetheart tax deal with HMRC still making headlines, it’s worth explaining how financial firms benefit twice from corporate tax avoidance.

Firstly, banks and accounting firms profit from advice and fees – in structuring the offshore tax avoidance vehicles for multinational firms to use and abuse.

Banks profit a second time, when the gaps in government revenue created by tax avoidance then need to be plugged – with more borrowing from, you guessed it, the same City of London banks.

Inspired by the Debt Truth Committee in Greece, Caroline Lucas is calling for an audit of UK Public Debt and an end to the political football over the UK’s debt, allowing us to look to the future – and to finance a shift to a renewable energy based economy.

When we look at the state of the global economy today, leading economists such as Professor Steve Keen are quick to note that it is the crushing weight of debt, and private debt more-so than public, that is choking off growth in our economy.

By agreeing to tax hikes, we simply take more money from the pockets of working people, already struggling from decades of stagnating wages.

The only way to restore demand in this financialised economy is to wipe the slate clean and cancel the odious debts, both public and private which are crippling our society.

Such a process has historical precedent, indeed the bible contains reference to precisely this event – known in scripture as the debt jubilee.

An amnesty on interest repayments on money borrowed by Scottish local government (mostly money borrowed from ourselves!) would save councils £883 million a year, far more than the £604 million cut on the horizon in 2017.

I’m with Caroline Lucas, the UK needs a public debt audit and debt cancellation. Now for the small matter of convincing George Osborne...

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