Local council debts rival India's

LOCAL COUNCILS in Britain owe nearly pounds 50bn - almost enough to clear the national debt of India. Interest payments on local authority debts come to pounds 4bn a year.

An Independent survey of local government debt reveals that 10 councils owe nearly pounds 10bn between them. The City of Glasgow Council has the greatest debt - more than pounds 2bn, nearly twice as much as the next most indebted council, Manchester, with pounds 1.1bn.

Islington, home of New Labour, has the largest debt per head of population, pounds 4,927.

Paul Burstow MP, the Liberal Democrat local government spokesman, said: "These figures confirm that the councils with the most debt are Labour-run. Labour's short-term decisions have long-term costs."

He blamed Labour councils that took on large loans in the 1980s and early 1990s. "Now the bills are coming in and services are suffering. So we have the worst of both worlds: high debt and decaying schools and housing."

Richard Ottaway, the Conservative spokesman, said: "Over the length and breadth of the country, the evidence is that Labour councils give you poor value for money. And in many cases very dubious practices are being exposed."

The councils were defended by the Department of Environment, Transport and the Regions. In a statement last night, it said: "All current local authority debt has arisen out of expenditure controlled by the present rules and policies of this and previous governments. This debt does not reflect financial mismanagement."

The Independent's league tables are based on comparisons of a council's long-term borrowing with its operational assets, such as houses, buildings and land. This reveals that Edinburgh has two-and-a-half times as much debt as it has assets. Tower Hamlets council heads the British councils with nearly as much debt - pounds 663m - as assets.

A spokesman for Tower Hamlets said that it is one of the most deprived boroughs in the country. "A combination of low-value stock and high refurbishment costs result in the ratio between borrowing and net equity being high."

At least 66 councils have no debt, but these are mainly district councils that provide services in a two-tier system alongside county councils. Only two county councils have no debt: Dorset and West Sussex.

Britain's 450 local authorities own assets worth pounds 146bn, about pounds 2,554 per head. About half of this is in council housing, which has been reduced in value at a rate of about pounds 2bn a year as council housing continues to be sold. Schools and other educational assets are the next largest group, worth about pounds 632 per head of the population.

If the pounds 4bn annual interest payments were spread equally throughout the country, it would cost the average household about pounds 160. The average council tax bill is roughly pounds 500 per home.

Unitary councils provide all services for their areas. Only two unitaries, the London boroughs of Bromley and Barking & Dagenham, have no debt.

Thirty-five councils refused to give figures.

As the Government points out, the size of long-term debt is not conclusive evidence of the financial health of a local authority. Councils vary in size, population and range of services. Some councils with large debts also have the most assets, for example Glasgow and Manchester. An absence of debt does not automatically mean that a council is well-run. Dorset County Council has no debt, but 43 per cent of its primary school classes have 30 pupils or more - the highest percentage of all county councils. Only 9 per cent of Dorset primary-school pupils are in classes of fewer than 20.

Councils need permission from central government for all borrowing. Most loans are provided through the public works lending board at advantageous rates, and housing loans are subsidised by the Government. The average rate of interest is 8.6 per cent.

However, councils take very different approaches to managing their finances. A number of inner-city councils, such as Tower Hamlets, Liverpool and Islington, took to borrowing large sums of money to maintain services in the 1980s, when their charges were capped.

The worst county in Britain for debt is Lanarkshire. Once part of a monolithic Strathclyde council, it was divided into two unitary councils, North and South Lanarkshire, two years ago. The councils have debts of some pounds 436m each. Much of this was inherited from the old Strathclyde council, and both councils have large stocks of housing.

Camden was once seen as a classic "loony left" council, but unlike its Islington neighbour it has reduced its debt by half in the past five years, to pounds 380m.

Steve Bundred, Camden's new chief executive and former finance director, said it is hard for the public to make "meaningful" judgements about the financial health of councils. "The figures are get-at-able but hardly transparent," he said.

The Audit Commission is conducting a consultation exercise to find suitable indicators so that council tax-payers can gauge the financial health of their local authorities.