Glasgow’s Money: A Critical Assessment of Glasgow City Council’s Financial Model

An analysis paper by The SANE Collective for the People’s Plan for Glasgow, August 2021

EXECUTIVE SUMMARY

PART 1: AUSTERITY

• Glasgow City Council (GCC) saw the largest reduction in real terms revenue funding from the Scottish Government of any local authority from 2013 to 2020, £270 per person, as compared to £160 per person on average in Scotland.
• Scottish Government funding is worth 41.3% of GCC’s total income, by far the largest single funding contributor, and increasingly is ring-fenced for Scottish Government priority areas, reducing the financial autonomy of GCC further.
• The local taxation balance between the council tax and business rates in GCC has shifted towards the former and away from the latter in recent years, a regressive change. The cost of council tax has been increased and is anticipated to bring in more revenue than business rates in 2021/22, which had been falling even before the pandemic hit.
• The Council Tax is 30 years out-of-date and is a regressive tax which is too burdensome on the poorest residents in Glasgow while not charging the wealthiest enough. The flat-rate increase in Council tax between 2017-2020 squeezed those on low-incomes further, who have seen their wages stagnate over the past decade while living costs rise.
• Revenue from business rates has been falling in Glasgow over the past five years despite the value of commercial property rising and Glasgow having an estimated 18,000 businesses in its vicinity. The tax is clearly ineffective in capturing a portion of growth in the economic value of businesses operating in Glasgow.
• The council has made an estimated £327 million in service cuts since 2012/13, equivalent to half the cost of the council’s education budget in 2021/22.
• Spending on Education and Social Work now takes up 71.6% of total services expenditure, up from 64.9% in 2016/17. GCC service provision is being narrowed to just two big priority areas.
• While Education spending has continued to rise, Social Work spending has stagnated over the past five years. The other areas where the budget has been reduced since the SNP administration came to power are Culture & Leisure, Roads & Lighting, Transport Subsidies and Concessionary Fares, and ‘Other Services’.
• GCC cuts have not always been transparent. An example of this is the ‘Transformation Programme’ from 2016-2018, which was supposed to be about “transforming the city” but Audit Scotland found that its only measurable ‘achievement’ was delivering £102.5 million in cutbacks.
• The council now spends significantly more on employee costs than five years ago and significantly less on outsourcing, a positive shift in direction but one that could still have much further to go since “third party payments” still make up nearly one-third of council spending.
• Budget cuts continue to hit the poorest hardest. Budget cuts announced in 2021/22 include a £4.7 million reduction in Glasgow Life’s budget, with 69 leisure and culture venues out of 172 set to remain closed over the next year despite the lockdown ending. The council’s own equality impact assessment found that the impact of this would be ‘high’, including potentially falling foul of human rights legislation and leading to the “displacement” of vulnerable service users.
• The number of senior staff in GCC receiving six-figure salaries rose from six in 2016/17 to 13 in 2020/21, while a further 25 council staff (excluding teachers) now earn between £95,000-£99,999, up from zero in 2016/17.
• GCC has the highest number of ALEOs in Scotland, accounting for a quarter of all spending in 2015. ALEOs are a means of commercialising aspects of council operations, and always involve added costs with the creation of a separate, highly-paid bureaucracy. ALEOs also increase the complexity of council operations and can be utilised as a means to drive through attacks on workers’ conditions. ALEOs should be reviewed with consideration given to bringing them fully in-house, as the council has already done with Cordia and Community Safety Glasgow in 2018.

PART 2: THE DEBT

• The size of the council’s debt and the immediate costs of debt servicing have been reduced under the SNP administration over the past five years, but the council still paid out £103.8 million in debt repayments in 2019/20, 45% of council tax income raised that year
• More than half of the council’s £1.4 billion debt is due to be paid back between 2050 to 2070, a potential crunch moment in the council’s finances in the not too distant future.
• The sale and leaseback of council property to cover the cost of settling the historic equal pay claim in 2018 is £536 million, £528 million of which is to be paid more than five years into the future, adding to the council’s long-term debt burden.
• It is unclear that GCC has a plan to increase council revenues over time in order to pay back its debt-fueled infrastructure investment, nor that it could, given local taxation is not fit for purpose. There are also transparency issues about what exactly the council’s debt has been used to pay for.
• Over half of the council’s debt is held by the UK Treasury’s Public Works Loan Board (PWLB), which tends to be at a lower rate of interest than commercial bank debt but varies depending on when it was taken out. The council is paying £26.8 million per annum in pre-devolution PWLB debt which has an average rate of interest of 8.32%, double the rate charged on more recent PWLB debt. Unite Scotland has proposed seeking an amnesty or re-negotiation of pre-devolution PWLB debt.
• GCC has £449 million in ‘Lobo’ loans with commercial banks, which have average rates of interest between 7-9 per cent, far higher than PWLB rates. GCC has the third highest Lobo debts in the UK and the highest in Scotland, but unlike the only two councils with more Lobo debt (Newham and Kent) GCC has not pursued Lobo debt re-negotiation or cancellation. A similar re-negotiation as was achieved by Newham Council could save GCC £450 million, and £11 million per annum, more than the initial value of the loan to the council. £11 million per annum is about the cost of running four large primary schools.
• The council has Private Finance Initiative (PFI) debt from the 2002 deal for the construction, renovation and maintenance of 29 of the council’s 30 secondary schools, and one primary school. The debt ends in 2030, but the council still owes £562 million as of 2020/21, more than double the £346 million value of the assets, and is paying an interest rate of 8.37%. The repayment costs in 2019/20 alone were £56 million.
• Defects were found in PFI built schools in Glasgow, which had the same constructor, Miller Group, which was involved in the Edinburgh PFI schools’ scandal in 2016.
• The Glasgow schools PFI consortium is now owned offshore, meaning they pay no tax in Scotland.

PART 3: CAPITAL INVESTMENT AND ASSET MANAGEMENT STRATEGY

•  GCC’s Property and Land Strategy seeks to sell-off council assets and centralise operations in “fewer high quality facilities”. Bringing in short-term revenue streams from selling off assets and focusing on building big infrastructure projects which can be commercialised and attract tourism and business investment into the city has been a typical strategy of local authorities across the UK in the era of neoliberal austerity.
• What this strategy fails to consider is the possibility of investing in the council’s current assets in deprived communities as the basis for an industrial policy which seeks to create local jobs directly and generate new, sustainable revenue streams for the council over the long-term.
• High profile capital investments over the past decade include investment in SEC Ltd, most notably through the £125 million building of the SSE Hydro centre, which achieved commercial success prior to the pandemic shutting down the venue for over 12 months. This highlights the risks to the council of putting all its capital investment eggs in the ‘big commercialised project’ basket.
• The Commonwealth Games 2014 investment in Dalmarnock was a classic example of state-led gentrification, with locals displaced and largely shut-out from the new housing and sports facilities which replaced the old tenements and shops.
• ‘People Make Glasgow Communities’ is the council’s latest scheme to sell-off council assets and responsibility for the delivery of services to third sector organisations and the private sector, under the guise of “empowering communities to make their own decisions”.

PART 4: CONCLUSION: 10 PROPOSALS FOR DEEP AND RADICAL REFORM

1. Pursue debt renegotiation, cancellation and amnesty, especially in relation to Lobo and PFI debt.
2. Look at the potential for new sources of debt financing – local authority pension fund investment and the Scottish National Investment Bank.
3. A new strategy for capital investment and asset management based on an industrial policy which retains assets to develop local council jobs which are revenue raising, and reduces emphasis on high-profile, commercial capital projects to attract tourism and business investment.
4. A fair share of Scottish Government funding and more financial autonomy for the council.
5. Scrap the Council tax and replace it with a fair and proportionate tax on property/land.
6. Review and consider replacing Non-Domestic Rates with a tax which is better at capturing a portion of growth in the value of businesses in Glasgow.
7. Consider scrapping all ALEOs and bringing them in-house.
8. Wage ratios to limit pay inequality in the council.
9. Aim to further reduce outsourcing and increase council spending on council operated staff and projects.
10. A firm no austerity policy, which the above measures should support by increasing the council’s financial resources over the long-term.