UK cities' debts rival third world nations'

Councils in Britain owe more than £50bn, enough to clear the national debts of 30 of the world's poorest countries - and the Government is preparing to relax borrowing controls even further.

An Independent on Sunday survey reveals 10 councils owe more than £10bn, the national debt of Bangladesh.

Glasgow Council has the greatest debt of any council at more than £2bn - equivalent to the money owed by Mali, and as much as the combined debt of Manchester at number two and Birmingham at three, with £1bn each. Interest payments on local authority debts alone come to £4.3bn.

The scale of debt, much stretching back decades, is crippling council ability to pay for new projects or invest for the future. In one London borough, Islington, the cost of debt servicing is £600 per adult per year. In Hackney, it's £420 a head, in Southwark £415, Lambeth £386, and Manchester £370.

Despite these figures, the Government's slackening of borrowing controls is expected to trigger a substantial increase in capital investment by councils, after last week's joint report by the Department of Transport, Environment and Regions and the Local Government Association.

Inner city councils such as Tower Hamlets, Liverpool and Islington started heavy borrowing to maintain services in the 1980s when the Thatcher government capped their charges. But most big debtors blame their borrowing on the cost of maintaining massive council house stocks.

Some debt has been incurred though the respective council's asset base is weak. Tower Hamlets council (number 12 in our league) has nearly as much debt - £663m - as assets. A spokesman for Liverpool council, at number six, defends its high rate of debt compared with assets, saying valuation of its assets is depressed by low property valuation in the commercial sector.

The county council with greatest debt is Kent (number 18) at £420m. A spokeswomen says Kent is the largest county council and the debt has been "greatly inflated" by roadbuilding associated with the Channel Tunnel. It also has a big school-building programme.

Two district councils have more debts than assets, South Staffordshire and East Hampshire. South Staffordshire has £17m of debt, nearly twice its assets. Only two county councils have no debt - Dorset and West Sussex.

Much of the £51bn of council borrowing comes from the Government's Public Works Loan Board which gives local authorities an advantageous interest rate, and housing loans are subsidised by government. The average rate of interest for all borrowing was 8.16 per cent.

Like Glasgow and Manchester, some councils with large debts also have the most assets and the biggest populations. A spokesman for Glasgow council said: "Glasgow has the highest number of council houses in the UK [97,146]. Investment in council housing accounts for a considerable share of debt."

The council is considering proposals to transfer its housing stock out of local authority control, which will halve the outstanding debt.

Scottish councils are owed £930m in back council tax from voters, including £155m from 1998/99 alone. The rate of collection in Scotland is only 86.8 per cent compared to England and Wales at 95 per cent.

Research by Simone Becker