Town halls let off the debt leash

LOCAL authorities will be set free next month to borrow as much as they want for capital investment projects such as schools, museums, libraries and swimming pools.

At the same time as producing £475m to help pensioners meet excessive council tax bills, Chancellor Gordon Brown's Budget last week ended a century of close controls on borrowing by town and county halls.

More than 550 cities, towns, counties and other authorities in England, Wales and Scotland will be able to decide for themselves how much debt to take on. These bodies include the Greater London Authority, Transport for London and the Metropolitan Police.

The Government admits that excessive debts might be run up by councillors, but says 'they will have to answer to voters' if they get it wrong.

But Deputy Prime Minister John Prescott's office, which oversees local government, has admitted that 'in the most exceptional cases' national taxpayers would bail out an authority that falls too deeply into debt.

Brown said in his Budget report that by scrapping the need for Treasury permission before councils borrow, he was helping to build 'vibrant, innovative and responsive local government'.

But some fear irresponsible authorities will go on a credit binge, landing their council tax payers with enormous debts.

Prescott's office admitted last year: 'Excess levels of council tax can be corrected relatively easily and quickly. But if an authority embarks on an ill-conceived or over-ambitious capital investment programme, it can take 15 or 20 years for the authority's finances to recover.'

Local authorities already have gross borrowings of £54.8bn, against £388.5bn of central government debt. But while current spending is running over budget, capital investment on buildings and equipment is less than was forecast because councils are investing more slowly than these items are wearing out.