What can Local Authorities do?

There are numerous cases around the world where Local Government has stood with the people against the behaviour of criminal banks. It’s time for our democratically elected UK bodies to decide whose side they are on and demonstrate civic leadership by challenging criminal financial institutions.

Debt Resistance UK calls on Local Authorities to:

  • Prioritise borrowing from the PWLB instead of private institutions and ensure that the PWLB keeps on serving the interest of Local Authorities by keeping interest rate profit margins low
  • Contest the legality of LOBO loans
  • Challenge the conflict of interest of private institution (banks, brokers, advisors) involved in the mis-selling/ mis-representation of LOBO loans
  • Request appropriate regulation of Local Authority finance, improve transparency and accountability and demand truly independent scrutiny
  • Work towards new forms of Local Authority finance that anchor wealth locally in communities
Prioritise borrowing from the PWLB instead of private institutions and ensure that the PWLB serves the interest of Local Authorities by keeping interest rate profit margins low

Local Government should prioritise borrowing from the Public Works Loans Board (PWLB) instead of private institutions because PWLB loans are cheaper and more secure. In addition, borrowing from the PWLB protects taxpayers’ money from the extractive practices of private financial institutions which result in exorbitant fees and charges being imposed, whenever a deal is signed, renegotiated or restructured.

Additional forms of financing should be explored as an opportunity to diversify funding streams, but should not be used as an excuse to dismantle existing public bodies such as the PWLB.

Recently Central Government has hinted the PWLB may be reformed or dismantled, following the introduction of the new Local Capital Finance Company (LCFC). Removal of the PWLB could have drastic consequences for council finances in distress. Not only is accessing credit from the PWLB cheaper than borrowing from private banks, but the PWLB is the lender of last resort for local government in a financial crisis or default scenario. Were the Local Capital Finance Company (LCFC) to substitute the PWLB as lender of last resort should a council go bankrupt, other Councils would have “joint and several liability” i.e. if one council defaulted, they all would have to pay the LCFC to cover the losses.

Loss of the PWLB as lender of last resort could have disastrous consequences in the current context where we are just starting to experience the full impact of the 40% budget cuts handed down to Local Government in 2010. Reports by the Local Government Audit Commission outline that 80% of Councils are likely to experience financial stress by 2018/19 and some may suffer bankruptcy. 1

In addition, George Osborne indicated in 2015 post election speeches that Government will be required to deliver a budget surplus, and further cuts to Council spending will follow.

Local Government should resist the closure of the PWLB and ensure it continues to work in the public interest. Councils should insist that lending margins remain favorable, rather than the PWLB becoming a profit-making body imposing unnecessary interest rate hikes, as has happened the recent past.

Public sector borrowing from other financial institutions should always be benchmarked against fixed-rate borrowing alternatives via the PWLB.

Contest the legality of LOBO Loans

Private sector wealth extraction schemes containing derivatives, such as LOBO loans, must cease.

Existing LOBO loans should be legally contested, renegotiated or annulled.

[We are currently researching how this could be done. Please get in touch if you would like to provide advice or support.]

Challenge the conflict of interest of private institution (banks, brokers, advisors) involved in mis-selling LOBO Loans

Council should take decisive action to challenge the clear conflict of interest presented by private institutions involved in the mis-selling of LOBO loans in the face of continuing regulatory inaction. This means questioning the integrity and independence of advice given to councils to enter LOBO loans.

[We are currently researching how this could be done. Please get in touch if you would like to provide advice or support.]

Councils should invest in training to increase financial literacy and competency within the Council and should seek truly independent advice rather than refer to organisations whose primary profit comes from public sector outsourcing, unlike CAPITA.

Request appropriate regulation of Local Authority finance, improve transparency and accountability and demand truly independent scrutiny

Public sector borrowing from private financial institutions should always be transparent and subject to independent scrutiny.

Work towards new forms of Local Authority Finance that anchor wealth locally in communities

Local Authorities are responsible for the economic, social and environmental well-being of their citizens. Councils should therefore protect the public money citizens entrust to their stewardship, not hand over control of Council budgets and financial decision making to unaccountable external outsourcing firms.

Local Government is being pressured to run more and more as a commercially focussed, profit making commissioning machine, from which the private sector can parasitise.

Local authorities should find ways to anchor investment, wealth and jobs locally, and give local citizens a much greater stake in how financial decisions and money flows are managed. It should follow the basic concept of “a commons’: that people should democratically manage common resources for the good of the community, the environment and the generations to come.

Change can occur through small steps like borrowing and investing with local banks, exploring crowdfunding & peer to peer finance at the local level and partnering with local co-operative businesses, rather than large multi-national corporations. Large structural transformations would include the creation of municipal, publicly owned banks and legislating for participatory budgeting in local authority finance. Local government procurement frameworks should be revised to positively discriminate towards these outcomes.

The Bank of Dakota is a state own bank where all bank profits are reinvested in the state through stable low-interest rate credit, which is available for the local authority, local small businesses and citizens. Profits are returned to the community rather than being skimmed off by a far-away bank lender. The bank does not compete with local banks but partners with them, helping with capital and liquidity requirements. It participates in loans, provides guarantees, and acts as mini central bank. The result is that North Dakota has a strong community banking sector, with four times more community banks, per capita than the national average and an economy that successfully survived the financial crisis.

The city of Peurto Allegre, Brazil pioneered over thirty years ago a process called “participatory budgeting” that directly involves citizens in determining priorities for municipal spending. It’s since been used in over 3000 cities across the world. The idea at the core is that citizens don’t just review or “input” on the Council budget, but they actually have the power to decide how public resources are used. Each experience is different, but most follow a similar basic process: citizens brainstorm spending ideas, delegates develop proposals based on these ideas, citizens vote on proposals, and the Local Government implements the top projects. Some research has being undertaken towards implementing similar processes in the UK.

Useful Links
  1. 2014 – The Guardian – Local Government financial settlement will push Councils to breaking point