The Tories need to take their neglect of local government seriously – councils are drowning in debt and starting to crumble

Cash-strapped councils don’t make headlines like cash-strapped hospitals or schools, and they have thus bore the brunt of austerity, hitting the most vulnerable hardest in the process

Wheeling out of a speaking engagement at the launch of Debt and Democracy in Newham, a citizen audit of the London borough’s disastrous experiments with so called Lobo loans, I almost came a cropper.

The front castor of my wheelchair hit a pothole on the dimly lit street, pitching me forward, sending my iPad and print copy of the report onto the cracked and pitted pavement in front of me.

“Says it all,” Joel Benjamin, a debt campaigner and leading figure in the report’s production, opined, shaking his head as he picked up my things for me.

“The financial situation means there’s no maintenance work being done, and that’s the result. Imagine what would have happened to an elderly person or a blind person there.”

I did. It made me shudder, as I dusted myself down and we moved on to the main road. The audit shows why we should pay far more attention to what is going on in our town halls, and to the financial crisis they face.

It is an under-reported story that briefly came to life when Tory-run Northamptonshire was taken over by two government-appointed commissioners. At one point it was projecting a £21.1m overspend. But the news agenda soon moved on.

Lord Porter, the Conservative chair of the Local Government Association, said he welcomed the £650m earmarked for social care by Philip Hammond in his latest Budget as “a financial boost” for local public services. However, he also warned that while the extra cash would ease some of the pressure councils are facing “local government in England continues to face significant funding gaps” and there is “huge uncertainty about how they will pay for local services into the next decade and beyond”.

“This cannot be a one off,” he said.

But his comments were barely reported.

On to Newham, which has more bank debt on its books than any other British council, and more Lender Option Borrower Option (Lobo) loans (27 in total). Lobos are fiendishly complicated products that were aggressively marketed to councils as an alternative to more traditional borrowing from central government by big banks, with the help of brokers on fat commissions.

It’s a story we’ve heard a thousand times before, just in different forms.

The report argues that central government connived in this, with a view to keeping borrowing on its books.

Long term debt that can extend for as long as 70 years, Lobos often contained attractive looking teaser rates, but gave lending banks the option to raise them at pre-determined points. Thanks to their structure, some of the councils that took them out have found themselves facing huge interest bills, which they are required to pay before turning their attention to other services.

There’s never been an entirely satisfactory explanation for what Newham intended to use the more than £560m it raised through them for, but amid a mounting scandal it was at least able to restructure the nearly £250m in Lobos taken out with Barclays, saving council tax payers up to £1.6m a year in interest payments, and nearly £100m over the loans’ term.

With a new mayor in place, it has gone further, joining 14 other local authorities in launching a court action against the bank. The report supports this move, arguing that the debt is “illegitimate” and other banks may face similar claims.

All well and good, you might think, but it also raises uncomfortable questions about the lack of accountability that existed at Newham and allowed the scandal to develop to the extent that it did. That is partly down to government reforms to the way council accounts are scrutinised. At the launch to talk about my dealings with Newham during an investigation into its finances that I conducted last year, I was particularly struck by what Rachel Collinson, one of the other speakers, had to say.

A Green Party member and Newham resident, she utilised her right to lodge an objection to the council’s accounts. The process of doing so saw her sending countless emails, banging on countless doors, and ultimately banging her head against a brick wall in a quest for answers.

With the government having abolished the Audit Commission, oversight of council accounts is now handled by the big four audit firms, with all their attendant conflicts of interests.

Oversight of their work is basically down to any citizen civic and bloody minded enough to do the job for free. Like Collinson.

We desperately need more like her because, in addition to borrowing, councils have increasingly taken to risky commercial activities as means of making the books balance, even financial speculation.

Newham is an example of how the first of those can go wrong. Its interest payments amount to more than it raises in council tax and the consequences have been dire. Cuts, cuts and more cuts, which inevitably hit the most vulnerable hardest.

Nationwide, the worst may be yet to come. We are likely to see more government appointed commissioners turning up at the doors of our town halls with axes in their hands.

The ultimate responsibility for this mess lies with central government. Cash-strapped councils don’t make headlines like cash-strapped hospitals or cash-strapped schools and they have thus bore the brunt of austerity.

They’ve been squeezed so hard that the pips aren’t just squeaking – they are screaming. We need to wake up because there are more Newhams and more Northamptonshires waiting in the wings and things could get very ugly, very quickly.