In full: Shadow Scottish Secretary Ian Murray's letter to George Osborne calling for a debt amnesty for Scottish councils

Dear George,

I write in regard to the levels of debt interest currently being paid by local authorities in Scotland on their outstanding pre-devolution debt liabilities to the Public Works Loan Board (PWLB).

Local authorities in Scotland are in straitened financial circumstances due to consecutive years of cuts from the UK and Scottish Governments.

The Accounts Commission has calculated that the latest round of spending cuts imposed will reduce council budgets by 5% in real terms in this year alone. This follows a real-terms cut of 11% in funding over the last five years.

Cuts on this scale have damaged the vital public services that councils provide, and local authorities cannot continue to absorb them without any form of relief.

I would, therefore, urge you to give serious consideration to the request from Scottish local authorities and the Unite union to grant an amnesty on outstanding pre-devolution debt liability. This request has my full support, and that of the Scottish Labour leader, Kezia Dugdale.

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As you will be aware, local authorities in Scotland owe a total of £2.4 billion in pre-devolution debt liability, on which they are paying an average rate of return of 8 per cent, with some paying up to 10%.

According to calculations by Unite, the average interest charged by the PWLB post-1999 has fallen significantly, to around 4.4% (Standard Fixed Rate for a 30 year Maturity Loan).

This means that local authorities in Scotland are paying well over the odds on their pre-devolution debt, with City of Edinburgh Council paying an average of £32.8 million a year in pre-devolution debt interest alone.

In total, Unite estimates that Scottish local authorities have paid back £3 billion in interest on pre-devolution debt. Given the current financial parameters within which Scotland’s local authorities are being forced to operate, payments on this scale are both unfair and unsustainable.

As you know, pre-devolution, the interest rates for loans from the PWLB were not set independently by the PWLB or the Bank of England, but by the UK (Conservative) Government.

In addition to this, the PWLB is currently running a surplus of £2.8 billion, so is in a financial position to grant an amnesty on interest on debts incurred pre-devolution.

Were you to agree grant relief on the pre-devolution debt liabilities of Scottish local authorities, the millions of pounds currently being paid by one arm of Government to another could instead be invested in local services in Scotland, a much fairer and more productive avenue of expenditure.

Agreeing to an amnesty would, therefore, be morally just, fiscally responsible, and in the best interests of the people of Scotland.

The Scotland Act recently passed by both the UK and Scottish Parliaments will change the social and political landscape in Scotland, and serve to entrench the devolution settlement in the long term.

The new powers transferred to Scotland by the Scotland Act will greatly enhance the Scottish Parliament's control over our public finances.

However, if this is truly to represent a clean break from the past and a fresh start for Scotland, relief should be granted on pre-devolution debt liabilities that continue to impose an unfair burden of debt on Scottish local authorities.

The Labour Party and Scottish local authorities are prepared to take responsibility for fixing local authority finances - but this can only be done on a level playing field, not one skewed by a historic burden of debt.

Yours sincerely,

Ian Murray MP