Disastrous Truss budget forced UK councils to take out massive 50-year loans at soaring rates

Liz Truss and then chancellor Kwasi Kwarteng tried to introduce an unfunded £45bn package of tax cuts. Photograph: Reuters

Cash-strapped local authorities across the UK took out massive 50-year loans at soaring rates of interest in the aftermath of Liz Truss’s catastrophic mini-budget, according to official figures that reveal more about the long-term cost to the public of her 49 days in office.

Figures from the government’s Debt Management Office show that after the budget on 23 September, 2022, announced by Truss’s chancellor Kwasi Kwarteng, 24 50-year loans of between £590,000 and £40m were taken out by councils at interest rates of up to 4.77 %, over the rest of that year.

During 2023, while rates remained high, a further 29 50-year loans, including one of £80m by Lambeth council at an interest rate of more than 5%, were taken out as local authorities remained under severe financial pressure.

The way councils have been pressured by successive Tory governments to take on more debt and to adopt risky strategies to get by will be highlighted this week in a speech by shadow levelling up secretary Angela Rayner.

Rayner will argue that the Truss/Kwarteng budget saw councils locked into high interest loans that people will be paying back for decades to come, and that this was symptomatic of a disregard for local authority finance that goes back to the launch of George Osborne’s austerity drive in 2010.

Since then, local authorities have seen real-terms spending power cuts of more than 50%, meaning huge reductions in services, and leaving many now facing bankruptcy.

Last week Rishi Sunak criticised local authorities for putting up council tax too sharply, by more than 5%, even as some have been left on the brink of financial ruin.

Council leaders looking to raise tax by more than the 5% cap either have to be granted permission by central government or hold a local referendum on doing so. Bedfordshire is the only council to have held a vote, in 2015, which it lost.

Rayner will argue that Tory ministers have not only slashed funding but have failed to supervise it, ending oversight of local council spending and scrapping the Audit Commission.

In a speech to the Labour Local Government Conference in Warwick she will call for a “new partnership” between Labour and councils with a fresh system of “long-term funding settlements”, while warning that the crisis facing local government finance is so deep it will require “a long slog, not a magic wand”.

Rayner’s plan is likely to mean two-year deals for councils, as opposed to one-year settlements. She will also pledge to restore a functioning system for auditing local government finances, after it was revealed that 99% of English councils had not had financial accounts approved on time this year.

She will also pledge to give local leaders more control over housing and planning, skills, energy and transport, as part of Labour’s devolution agenda.

Rayner told the Observer: “The Tories have left working people paying more for less, with councils left picking up the pieces. Local government leaders are fighting to deliver vital services against the tide of a Tory economic mismanagement as demand surges amid the worst cost of living crisis in a generation.

“With the council tax bill set to double since Labour was last in government, any blame for a rise in council tax lies squarely with this Conservative government. The biggest obstacle to resolving the crisis in local government is the Conservative party.

“We will treat local government with the respect it deserves and recognise the vital role councils play in keeping services going, day-in, day-out, but that comes with proper accountability.

“A Labour government will start by providing long-term funding settlements to local leaders, giving them greater certainty and the ability to plan for the long term.”