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Andrew Glyn

Local Government:

Sucked Dry by the Money Lenders

(September 1976)

From Militant, No. 320, 3 September 1976, p. 5.
Transcribed by Iain Dalton.
Marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

In 1974, 18.3% of the gross national product passed through the local authorities [LAs]. This total covers a mixed bag of operations – goods and services bought from the capitalists [e.g. council houses built by private firms], wages paid to council employees [who totalled 2.9 million in 1974 or 11.3% of those at work], grants made to individuals [e.g. for house improvement] and interest paid on past borrowing.

The relative importance of local authority spending has almost doubled in the last 25 years – in 1950 they employed around 6% of those at work. What has accounted for this terrific increase? Education – the biggest item of expenditure – is a good example of what has happened.

The number of children in school has risen from about 7 million in 1950 to 11 million now. This is partly due to population changes, but also to the raising of school leaving age. There have also been improvements in standards: between 1963 and 1973 for example the number of pupils per teacher fell by about 10%.

Although much of the LA’s expenditure goes to the worse off sections of society, education expenditure, for example, is not that unevenly spread. In 1974 the average family with two children and income of about £1,500 a year benefitted from educational expenditure costing about £270 per year, whereas for families with incomes over £5,500 the figure was £390. This is because a larger proportion of children in higher income families stay on at school and in higher education.

Even these figures play down the real differences, for they assume that all children of a given age at school benefit from the same amount of educational expenditure. This is notoriously not the case as the local authorities in poorer areas do not have the money to provide schools of the same standard. This can be seen when looking even at broad regions; for example the proportion of children in classes with more than 30 children ranges from 27% in London to 38% in Wales.

Local authorities get the cash to finance their expenditures from three sources. Firstly there are the rates.

Rates have declined in importance as a source of revenue – from 48% of LA current expenditure in 1950 to 32% now. Part of the reason has been that new rateable property has grown slowly.

Rates have taken a slightly rising share of workers’ incomes, and the rise would have been greater but for a special government subsidy begun in 1966, to hold down the rates for householders. Even taking account of rebates, rates are still a regressive tax, so that in 1974 the average family with incomes around £1,600 paid 3.4% of their income in rates, whereas for families with more than £5,500 the figure was 1.7%.

Secondly two thirds of current LA expenditure is financed by the central government. The government fixes a total for planned LA expenditure, decides what proportion it will finance by the grant and then parcels this out to the authorities according to complex formulae reflecting the ‘needs’ of the authority (e.g. number of children in the area) and the ‘resources’ (i.e. rateable value as an indicator of what the authority can raise in rates), and grants for specific services like the police.

Thirdly around four fifths of LAs’ capital expenditure (building council houses, schools, etc.) is financed by borrowing, the level of which is strictly controlled by the government. The debt of LAs rose from £9 billion in 1964 to about £25 billion by the beginning of 1976 – representing about £2,000 for every family in the country. The proportion of current expenditure of LAs eaten up by interest rose from 11.6% in 1950 to 21.2% in 1970. Since then the money value of interest payments has already doubled and its real value increased by 28%.

Interest payments have been particularly important for the provision of housing. In 1974 total loan charges constituted 68% of current housing costs (the rest being maintenance, improvement and administration). Leaving aside that part of loan charges which are necessary to replace the housing stock it still leaves 48% of pure interest. So subsidies at 39% of revenue do not even cover interest. In fact, the so-called ‘subsidised’ rents actually pay more than the real cost of the housing (depreciation and maintenance). Tax and rate payers pay for the housing ‘subsidies’ all of which go to those who lend to the local authorities!

This confirms clearly that if the banks and finance houses were brought into public ownership and councils were given interest free loans rents could be reduced by at least half immediately and there would still be adequate finance for replacing housing stock and maintaining it.

Fat Margins

Over the past five years the LAs have borrowed about £11 billion, of which about 40% came from banks and other financial and industrial firms, and just under half from the central government, (Which of course in turn had to borrow equivalent sums).

Some part of interest on these loans is received by small savers, but the big financial institutions make a fat margin on what they borrow from savers and then lend on to local authorities. For example in 1975 the average rate of interest paid by banks on deposit accounts was 7% and if they lent this money to LAs they made almost 11½%.

Expenditure by local authorities certainly grew rapidly over three years 1971 to 74 – in real terms by 26.4% for current expenditure and 17.4% for capital expenditure compared with 8.9% for gross national product.

The big increases were in housing (current expenditure on subsidies rose almost 6 times and expenditure on housebuilding rose 51% in real terms), health and personal social services (59%), current expenditure on roads (40%) and education (19%). Obviously much of this represented real, and much needed, improvements on services.

Land Prices

But a major factor in the far greater increase in the current cash cost of expenditure was the especially rapid increases in the prices of what LAs buy. The most notorious example was the explosion in the costs of construction and of acquiring land and other assets. Over these three years 1971–74 the costs of public expenditure on housing rose 37.6% faster than prices in general, adding something like £1 billion to the LAs’ bills. Little wonder that the profits of construction companies more than doubled between 1970 and 1973 and those of property companies rose by 140%. The gravy went to Poulson et al.

Despite the government attempts to hold down the growth of local authorities’ current expenditure it rose about 4% in real terms between 1974 and 1975, while capital expenditure was slashed by more than 12%. The January 1976 Public Expenditure White Paper called for no real growth of LAs’ current expenditure up to 1979/80 and a further fall of 23.4% in capital expenditure.

Obviously constant total current expenditure would mean cuts in many services if unavoidable increases in other services were to be accommodated, and this is happening already. The cuts in capital expenditure would mean that school building in 1979/80 was one third of the 1973/74 level. Personal social service investment would be 37% below that of the 1973/74 level, and housebuilding, while maintained at the present level, would be 12% below that of 1970.

The only rapidly growing element of public expenditure is payment of debt interest, which is expected to rise in real terms by one half between 1975/76 and 1978/9 – as a result of the large government borrowing requirement and the refinancing of maturing debt at high interest rates.

The object of the holding back of public expenditure is of course to allow private capital investment to grow – by at least 50% between now and 1979 according to the White Paper plans. Whilst Denis Healey originally justified public spending cuts to ‘make room’ for his long-awaited export-led boom he now threatens more cuts if exports do not materialise since the balance of payments is so bad! (The Times, August 4).

The stranglehold which the central government exerts over the LAs’ finance gives Labour councils little room to manoeuvre. With the Rate Support Grant fixed in real terms the government has set a maximum additional sum of £400m to meet higher costs due to inflation. With inflation certain to be greater than that covered by the £400 million this is a back-door way of cutting current expenditure in real terms, while blaming inflation.

Borrowing is strictly controlled and to declare a block on paying further debt interest (which would allow one fifth more of current expenditure to be devoted to maintaining and improving services rather than lining the pockets of the capitalists) would just lead to a refusal of the government to permit the borrowing essential to finance existing capital programmes.


Formally the rates are still within the control of the LAs; but the government has made it clear that any attempt to use the rates to finance expenditure in excess of government targets of zero growth in current expenditure and in LA employment, would lead to withdrawal of the Support Grant and thus the collapse of the LAs’ finance. In any case, with the rates only one third of current expenditure, to meet all extra expenditure wholly from the rates would mean a disproportionate increase in a tax that already hits the poor.

The only solution is for Labour councillors themselves to take the lead in mobilising a campaign against the cuts. This should explain in detail all the cuts that have been made locally, what the White Paper Plans imply in terms of schools, housing etc., and how the Tories would try to implement harsher cuts, increase charges, and even try to hand over to private capital some of the services the LAs provide.

But obviously real solutions must be offered as well. The monumental report of the Layfield Committee on LA finance contains masses of useful information, but no attempt to relate the crisis faced by the LAs to the crisis of the capitalist system as a whole. So the best it can suggest is replacing part of the government grant by a local income tax, merely a different route for workers to finance local services.

Banks and Land

On the contrary socialists must counterpose to the cuts, not different ways for workers to pay for the crisis, but a socialist plan for expansion based on real control of the economy.

Control of finance requires ownership of the financial institutions. Control of building programmes requires ownership of the land and the building monopolies. The campaign of local Labour councils should be one conducted in conjunction with the rest of the labour movement to refuse to implement the cuts, and to propose a thoroughgoing socialist plan of production through ownership of the big monopolies who have sucked the local authorities dry. A campaign to insist that our Labour government implement such a programme is the only way to meet the manifesto commitments of local councillors and the party as a whole, and avoid a devastating defeat at next year’s local elections.

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Last updated: 1 November 2016