The equivalent of 50% of our council tax is paid out in interest payments on debt owed to central government and banks.

 By Gateshead resident, Liz Moylett.

I started becoming involved in the issue of local authority debt at the end of 2018 when my local council, Gateshead Council, launched a public consultation to seek residents views on cutting £29 million from the following year’s budget. Due to austerity, Gateshead Council had already made cuts of about 50% over the previous 8 years.

The consultation opened on 11th January via the council’s website and the council would agree the budget in February 2019. The Gateshead Council Leader said: “If the government say that austerity is over, that’s just not true in Gateshead. […]Over two thirds of the Council’s budget has to be spent on the most vulnerable young and old in the borough. What remains won’t stretch to provide the services that we provide now, so people need to let us know what’s important and what they think we should and shouldn’t do to help manage the shortfall. […]People are going to have to help us make these decisions.”

I was appalled by the relentless council cuts and the harm austerity was doing. I was also incensed that Gateshead residents were being asked to collude in these cuts as if there was no alternative. Hey people, let the Council know whether you favour pest control and bowling greens above football pitches and the Early Help service. Up to this point, I naively thought that the council was funded in two ways – council tax and direct funding from central government. Nothing on the council’s website disabused me of this belief. We are one of the richest countries in the world and yet we were being told we can’t adequately fund libraries, parks, social care, education etc.

I then got thinking and reading and came across Debt Resistance UK’s and Research for Action’s websites which opened my eyes about council funding. I came across new acronyms such as  LOBO loans and PWLB. I realised the depth of financialisation of our council and how financialisation/privatisation of our public sector continues to maintain social inequality and diminish our civic society.

I began communicating with Labour-controlled Gateshead Council and my local Labour councillors about the issue of LOBO loans and debt restructuring. It seemed to me that Gateshead residents were being kept in the dark about the massive amount of debt the council was in (>£600 million) and the many millions spent each year on interest repayments to private banks and central government. How could residents make an informed decision on budgetary decisions when this knowledge was not publicised?

It now transpires that an equivalent of 50% of our council tax is paid out in total interest payments on debt owed to central government and banks. In 2018/19 Gateshead Council spent £44.4 million on interest payments and the council tax income the same year was £88.9million (see page 4 of the report).

In other words, we were being asked which council services we were prepared to lose so that the council could prioritise paying the banks and the government. These interest payments are ring-fenced in Gateshead council budget (failure to service debts would lead to hefty penalties and the imposition of government administrators), We have crippling austerity cuts at the same time as Gateshead Council is having to make expensive loan repayments. It is not Gateshead Council’s fault that they have been in the invidious position of having to take out these loans. The council, however, should not keep their borrowing position secret as this appears to protect this austerity-promoting government from full scrutiny.

Wealth extraction from Gateshead residents continues as our council tax is being increased yet again in 2020/2021. The Conservative government is forcing Gateshead residents to spend ever more of their already taxed income on council services which central government should be funding. The Conservative Government is responsible for the dire state of council finances and resources. Gateshead Council has done a remarkable job of keeping services going. Officers and councillors are in an invidious position and have a really tough and thankless job. Wealth extraction needs to be put out in the open, named, discussed, publicised. If it goes unspoken, financial interests will deplete our public resources.

I have contacted my local Labour councillors, my MP (Labour), the leader and deputy leader of Gateshead Council and the local Unison branch. I have asked them to take action on this issue, publicise it and use their resources to give Gateshead residents clear, honest and transparent information.  I have asked Gateshead Council to join with other councils and put pressure on the Government to support councils exiting these loans. As yet, there appears to be no action on this issue. Government profiteering at the expense of its citizens is immoral but appears to go completely unchecked by local and national politicians and by the media. I live in hope that one day this will change.


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This report has been published by Research for Action. Please get in touch if you would like us to provide a report for your council.