As household debt in the UK has become the highest it’s ever been on record,  many lower income households finds themselves unable to save money at all, increasing these households’ vulnerability in times of financial insecurity.  Households unable to make ends meet have been said by the Office of National Statistics  “to be living beyond their means”. 

Blaming of borrowers often occurs whenever the topic of household debt comes up. The notion that debtedness is the fault of the individual, is often fuelled by soundbites and stories in the media. Society promotes the idea that it is a self-inflicted punishment for something one person has done, because they’re the ones signing up to credit cards, taking out loans, repaying the mortgage. But most household debt isn’t because people are frivolous like many presume. Rather, it is caused by reductions of wages and benefits, redundancy, and illness. According to Stepchange’s Scotland in the Red Report, before COVID-19 the main cause of household debt was  ‘life events’, Life events are classified as unexpected shocks that put a burden on a person’s finances. In many cases, such events are costly burdens that complicate a person’s life, with no room for flexibility. 

With a third of people being affected financially by COVID-19, a wide range of people have experienced a ‘life event’ that has affected them financially.  An estimated 4 million people have been added to the number with substantial household debt since the crisis began. This begs the question of whether or not this will pave the way for people to talk about their debts and how it affects them.

At the same time, The Bank of England stated that £7.4bn of consumer credit was repaid during the first month of lockdown, the biggest net repayment in a month since 1993. A huge reduction in retail spending led to this, with the outstanding debts on credit cards remaining at £64bn. This positive sounding news demonstrates how the lockdown has added to the wealth divide in the UK. People who were able to keep working can see their debts cleared from a lack of incentive to spend, while many workers being hit by job losses and cut wages take on more debt while on furlough. If this trend continues we are unlikely to see a decrease in stigma associated with debt. It’s possible that these figures could be used by creditors to present a distorted version of events when payment holidays end, adding to the guilt of people who are unable to repay when so many others could.

A poll conducted by Citizens Advice Scotland this summer found that 1 in 4 Scottish people were concerned about their debt repayments. In response to these findings a spokesperson for the Scottish Government said that “We recognise the stress and strain debt can create and we would encourage anyone with concerns to contact organisations such as CAS to get advice and support.” While this statement acknowledges the fact that it’s a stressful time for people in debt, it passes the buck of having a conversation about debt back onto the charities that have already done so much to bring the issue to the foreground. Along with voting down the recent plans for rent controls, the Scottish Government hasn’t done much to address people’s heightened debt concerns. 

A reduction of the stigma around household debt is necessary to widen the conversation on the topic and increase the pressure on government and public lenders to make systematic changes to our flawed financial system. To make this happen  we have to harness the shared experience of COVID-19’s impact on household debt. People should not be treated like criminals for the chaotic circumstances that life throws at them. The conversation needs to be facilitated in a way where the Scottish government talks about personal debt, in a transparent way that makes people feel heard instead of at risk for speaking out.  If we don’t talk about the devastating impact of household debt openly and address the scale of the problem, we won’t build back as a better society. 

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The outbreak of COVID-19 has reminded us what is really important – looking after each other and our communities, our health and well-being, our public services. Now, as Scotland moves past a peak of infections, our attention turns to what comes next The choices made by the government now will affect our communities and our climate for generations to come. 

The recovery plan must lay the foundations of a greener, fairer Scotland for everyone. Where we reduce inequalities, strengthen public services and provide an adequate income for everyone. Where we do our fair share of climate action and restore nature. Where we all have a say in decisions that affect us.

We are proud to stand with over 80 organisations in Scotland calling for a Just and Green Recovery in Scotland. Together, we wrote to the First Minister outlining five steps for the recovery which you can read here.

This is just the beginning, we need to grow and show public support for a recovery that helps us transform our society for the better

Will you join Scotland’s movement to Build Back Better?

Sign the petition here!

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Last month at the Scottish Parliament we launched our report ‘Rethinking Private Financing’, the culmination of work from Jubilee Scotland over the past year researching PPP & PFI schemes. You can download and read it here. The launch was hosted by Neil Findlay MSP, who spoke to us about how passionate he was about this issue affecting Scottish people. In late January Neil Findlay had questioned Holyrood’s approach to many of the key issues the government have been quiet or unclear about when it comes to financing projects with private money, and what they plan to do in future.

Scandal at Holyrood

Derek Mackay MSP as the Finance Secretary of Scotland was the person answering these questions put forward to parliament, a mere fortnight before he was hit with a scandal that has put his career as a politican into disrepute. Mackay has been suspended from the SNP for sending inappropriate messages to a 16 year old, breaching a duty and care expected as a member of government, failing to  uphold a responsibility not to act in a way that puts young people at risk. In that context, these may be some of the last questions Mackay ever answers at Holyrood, but they still offer a snapshot of the Government’s current approach to these schemes that Jubilee Scotland are campaigning against.

Questions asked of the Scottish Government

Question S5W-27047: Neil Findlay, Lothian, Scottish Labour, Date Lodged: 21/01/2020 To ask the Scottish Government what its position is on whether local authorities could benefit from direct borrowing for public projects, rather than financing them through public private partnerships.

Answered by Derek Mackay (29/01/2020):Local authorities are entitled to use all resources available to them including their existing borrowing powers and support from the Scottish Government. It is however up to local authorities to decide how they wish to borrow and any commitments made by them are based on what they deem to be prudent and affordable.

The government’s approach to this is relatively Laisse-Faire as they have limited borrowing capacity themselves. Of course local authorities have to make financial decisions that are responsible, but the commitments that a PPP binds a council by are never prudent. They are at such high rates of interest that nobody can honestly say with what we know now, that they are affordable. They only seem that way in the short term. So by saying this, you are effectively shifting the blame onto councils for the debt they’ve accumulated, taking no moral responsibility while still introducing NPDs, a replacement model for the PFI.  What is forgotten here is while councils are allowed to use all resources available to them, there is no real alternative to PPPs supported on a national level in Scotland – there needs to be other options.

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Investment – both by the private sector and by government – is crucial to the long term economic, social and environmental health of any economy. As part of the UK, Scotland has a longstanding problem of underinvestment relative to other countries.

The percentage of GDP invested in 2014, at 17.8 per cent, was the fifth lowest of the EU countries. Only Cyprus, Italy, Portugal and Greece were lower – all countries which have been through a period of severe economic distress.

Of the comparatively small amount of investment that does occur in the UK, most is heavily concentrated in London and surrounding areas. As an example, in 2015-16 public infrastructure expenditure on transport per head was £2,604 in London, compared with only £170 in Scotland.

The problem has its roots in a combination of both lower public sector support in the provision of long-term “patient capital”, and a banking sector that is focused more on short-term shareholder returns than its foreign counterparts.
Extensive use of private finance initiative (PFI) (or its cousin the non-profit distributing model), has seen taxpayers pay through the nose for often poor quality infrastructure projects. Data published by the Scottish Government shows that since 1998 there have been over £8 billion worth of projects financed through PFI or NPD. Under the current payment arrangements these will cost the public purse a cumulative total of nearly £40 billion by 2047-48 – five times the original capital outlay.

Meanwhile, the Scottish banking sector channels billions into the economy each year, but most of this flows into property and financial markets, inflating asset prices and destabilising the economy. Today less than 10% of bank lending goes towards productive business investment. The result is a lack of funding in crucial areas such as housing, energy and transport infrastructure as well as continued under-investment in small and medium enterprises (SMEs).
If Scotland is to successfully address the key challenges of the twenty first century – climate change, demographic change and economic inequality – then new mechanisms are needed to finance and direct investment in a smart, inclusive and sustainable direction.

In a recent paper published by the New Economics Foundation and Common Weal, we set out how establishing a Scottish National Investment Bank would be the first step towards fixing this problem. National investment banks leverage relatively small amounts of public capital into a significant source of strategic and long-term finance that can be channelled into areas of the economy in most need. They are widely recognised as having played a crucial role in the economic development of many advanced economies throughout the twentieth century and continue to do so today in countries such as Germany, Japan and the Nordic nations.

In the paper we set out what a Scottish National Investment Bank might look like and how it could be established the Scottish political, legal and economic context. Our vision for the bank is summarised as follows:
• Mandate: The bank’s overarching mandate should reflect a broader economic strategy developed in a democratic process, controlled by the Scottish Government, and reviewed periodically.
• Activities: The core activities of the bank should be to support investment in infrastructure and SMEs and to direct investment towards innovation for social and environmental objectives, such as accelerating the transition to a post-fossil fuel economy.
• Ownership: The bank should be publicly owned but operated independently as a fully commercial entity, free of day-to-day political interference.
• Governance: Robust ownership and governance structures should be put in place which promote the highest levels of transparency and accountability, and provide a clear dividing line between the government and lending decisions.
• Capitalisation: The Scottish Government should inject £225m of ‘paid-in’ capital with that accumulated figure over six years being ‘subscribed’, giving a total subscribed capital of £1.35 billion from year one.
• Funding: The bank should be allowed to raise funds on capital markets by issuing bonds up to a leverage ratio of 2.5 times the amount of subscribed capital, meaning it could raise £3.37 billion that would be available for investment from year one.

By providing long-term “patient” capital to areas of the economy most in need, a Scottish National Investment Bank along these lines would help narrow the gap in Scotland’s productivity performance, boost export activity, diversify and expand the business base and speed up the transition to a low carbon economy. In doing so, it would support the creation of over 50,000 new jobs.

It would also generate billions of pounds of savings for the public purse. To illustrate the scale of the potential benefit to the public finances, we estimate that the Scottish Government would have saved a total of £26 billion if the projects financed through Private Finance Initiative (PFI) and Non-Profit Dividend (NPD) schemes had instead been financed by a National Investment Bank.

By positioning Scotland at the forefront of innovative banking reform that learns from best practice around the world, it would begin the process of reasserting the country’s once proud banking tradition. It’s time to see the Scottish Government act.

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Put simply every year Scottish Local Authorities are forced to allocate on average 42% of their income from council tax to servicing debts, many of them procured since 2008.

The problem is not that local authorities have been borrowing to finance large scale works – this is entirely reasonable and normal – it is how they have secured funding for such projects. Many of the loans in question were agreed with terms that disfavoured local governments through LOBO loan agreements (lender option borrower option). LOBO loans  have initially favourable rates but these  can be renegotiated at the prerogative of the lender every few years where the lender has the option to increase the rate, with the borrower having the option to either repay the loan in full or accept the rate change. Local authorities financing schools with LOBO loans rather than their traditional Public Works Loan Board loans is comparable to an individual paying for their extension with a Wonga Loan rather than a re-mortgage. It is an easier way to access large amounts of money, but less stable than the alternative. In short private financial institutions are benefitting from the high interest payments they receive from local authorities which – given the fact they can effectively raise interest rates whenever they choose – could convincingly be likened to legal extortion. Local authorities cannot afford this and in the most extreme case, that of the Western Isles Council, 103% of their income from taxes goes to service long term debt.

The Scottish Green party have asserted that as the loans were agreed on unethical terms they ought to be wiped completely. The Scottish Conservatives, however, have stated that to do so would be ‘irresponsible and unfair’. The Accounts Commission (whose self-proclaimed mandate is to hold Scottish councils to account and help them improve) has asserted that regardless of how the debt was procured and what it was used for they will have to be paid off by their respective councils. Perhaps they could help Scotland’s Local Authorities to avoid taking on toxic debts in the future?

One might ask what tempted Local Authorities up and down the country to take out LOBO loans in the first place? After the 2008-2009 financial crash and the Conservative-Liberal Democrat coalition budget cuts after 2010 councils looked to ways to fill the budget void. Add on to this the fact that George Osborne raised the interest rate offered to councils by the Public Works Loan Board – their traditional go to for credit- and all of a sudden LOBO loans started to seem like an attractive alternative. Although short sighted, the loans were taken out to stop cuts in front line services when they would have affected people most – and this is not something they ought to be punished for doing.

Although it may not be financially viable, or responsible, to write off existing loans with a no-consequence approach, it is imperative that the Scottish, and indeed British, Parliaments recognise that there is a major problem that must be confronted. The governments could take responsibility for the debt – thereby getting it out of the hands of private corporations – and pledge to stop any future loans being agreed on this basis. At this point, government intervention is required. It would not serve Scotland’s Local Authorities well to skirt around the issue and brush them under the carpet, only for them to manifest themselves into a far more ghastly problem for another administration to deal with; it would just be to cut off our nose to spite our face. And this is not a problem that solely concerns Scotland. Westminster must smell the coffee – although that, perhaps, is unlikely to happen given the current political situation.

Jubilee Scotland is currently doing work to fight these dangerous LOBO loans. This work is campaign against Scottish Local Council Debt. 

If you would like to write a piece for our website then please get in touch via mail@jubileescotland.org.uk

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By Alice Picard, Jubilee Scotland Volunteer (All posts are the views of the author, not Jubilee Scotland as an organisation)

“Scotland 2013 and Beyond: Our values and principles for a just world” was organised by NIDOS, Network of International Development Organisations in Scotland, in Edinburgh on May 17th 2013. The sun was shining outside the Radisson Blu Hotel but it was still worth staying inside. Indeed, as most of the speakers put it at the end the event, it was inspiring.

It was good to have speakers from different horizons in the morning. International horizons as the speakers were from Scotland, the UK as a whole but also from Sweden and Zambia. Moreover, we could hear from the academic world as well as from the corporate and third sectors. It is important to reflect on the future of international development together, integrating different values and perspectives in the process. What I would remember from the morning speeches would be the idea of solidarity. Solidarity as one of the main values put forward by Judith Robertson from Oxfam for instance but also as a practical policy of the Swedish Government as presented by Peter Sörbom, EU Policy Officer at CONCORD Sweden.

Values were also the point of focus of the morning workshops. We were supposed to discuss the five guiding values and principles that we would like to see shape Scotland’s policy towards the outside world. My feeling is that even though each participants came to the workshop with personal values that he or she particularly valued, the exchange was enriched by the speeches that were delivered just before. At least, that is what happened in my case. The third three values I wrote on my sheet of paper were Social Justice, Equality and Sustainability. I would have chosen them anyway, with or without the input of the morning speakers because I believe in them. However, thanks to the speakers’ contribution, I went beyond that and started thinking about what other values were also critical to their implementation. The two last values I wrote down were thus Accountability and Coherence. Accountability because choices made at some point should be up for challenge at any time of their implementation. Accountability is essential whenever money is involved, it goes without saying. Coherence because you cannot give from one hand and take from the other. That is sending aid to developing countries whilst at the same time not requiring multinational companies to pay their fair share of taxes to the countries of which they exploit the resources. And that is only one example of the way money can flow away from where it is the most needed.

Again, the most inspiring part was the debate between the participants. The aim was to talk to as many people as possible in order to explain why we had chosen one value over the others. We were allowed to switch values if we found someone convincing. The discussions I had were stimulating and I have to say I was about to change my own values for two new ones: Empowerment and Interdependence. Empowerment because it is crucial to empower individuals and civil society in the Global North as in the Global South and Interdependence because it leads to considering development aid as in our own interest. Each group came out with a certain number of values that were written down and then stuck up in the main room during lunch break so that every one could vote for five values once again.

The choice was difficult to make and I was particularly aware that I was voting as the vast majority of the audience. The last vote I cast was then for free education as no dot appeared yet next to these two words. I could try to explain why but that might be too long, really. Just randomly think about two other values: Empowerment again but also democracy.

Later on, we had the chance to hear from Humza Yusaf, Scottish Minister for External Affairs and International Development. My apologies to the supporters of the status quo but what struck me the most in the Minister’s speech was the introduction. Mr Yusaf pointed out that external affairs and international development were a reserved matter. Its conclusion, not a polemical one, was that it was still worth discussing them, here in Scotland. Mine would be that it is an argument in favour of Scotland’s independence. The values we discussed throughout the day seem to me as an appropriate base to start afresh and adopt a complete new approach to external affairs. An approach that would be coherent – remember? – and would get rid of arms deals. Yes, it would be brilliant if Mr Yusaf had the real powers to put the values he mentioned into practice.

A lot is already being done in Scotland though, as I discovered during the afternoon workshop I had signed up to, on Fair Trade and Procurements. There are actually no little steps in this area. Once tea and coffee are fairly trade, people consequently start asking about other items, such as milk or even clothing. Interestingly, the discussion on fair trade also touches on local supply and transparency of the whole supply chain. Public authorities and bodies have undoubtedly a key role to play to set up guidelines and good practice. It is also through them that citizens could become well-informed customers, accustomed to fair trade products.

To conclude, I would say I was thrilled to witness people thinking together and actually working towards a common goal. Not only for the sake of exchanging experience and networking but also because beside people from organisations active in the field of international development, there were also a few politicians and people who were there on their own behalf. The discussion has to go on so that when it is time to change or improve Scottish policies, ideas will be ready to pick up.

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