Rayner to scrap ‘payday loan’ premium for council bailouts

Struggling councils will no longer be required to pay a “punitive” premium on financial bailouts, Angela Rayner has announced in a speech vowing to get local government “back on its feet”.

The Deputy Prime Minister likened the fee, which was a condition for local authorities seeking emergency support under the previous Tory government, to a “payday loan” charge.

A total of 18 councils were given an injection of money from the government in February to ensure they could meet their legal duty to balance their books in 2024-25.

Bailouts through this exceptional financial support (EFS) framework are usually provided in the form of a “capitalisation direction”, which permits authorities to use capital funds raised through borrowing, or the sale of assets such as buildings, to fund day-to-day services.

Addressing the Local Government Association on Thursday, Ms Rayner, criticised the previous Conservative administration for leaving councils “stuck in a doom loop” with “money pouring out of a system with too many cracks”.

The Cabinet minister, who also serves as Local Government Secretary, said: “It’s going to be a long, hard slog to get local government back on its feet.

“And in the short term we’re doing all that we can to protect severely struggling councils, which is why I’ve announced we are scrapping the punitive, payday loan premium on borrowing for councils in need of exceptional financial support.”

Ms Rayner also used the speech to launch a new “Leaders’ Council”, comprised of local politicians and ministers, which she said would seek to tackle shared problems and deliver for communities.

“I have formally launched our new Leaders’ Council at this very conference, which will give local government a voice at the heart of government – this is a mark of just how seriously we take this,” she said.

Central to the Labour administration’s approach to local government is a belief that those with “skin in the game” should be put “back in the driver’s seat”, she said.

As part of efforts to hand councils greater autonomy, the Government has also proposed that local authorities could be given the power to decide for themselves whether councillors vote by proxy or attend meetings virtually.

“It’s not our place, for example, to decide whether councillors should attend your meetings remotely or use proxy votes where they need to,” Ms Rayner said on Thursday.

“So I can again announce today that we’re putting forward proposals to let councils make the decision for themselves, which means making it possible for people from all walks of life to have a stake in local democracy, whether they have caring responsibilities or aren’t able to make it to the town hall in person because of illness or disability.”

In order to prevent councillors themselves receiving harassment and abuse, ministers will also consult on removing the requirement for members’ home addresses to be published.

The Deputy Prime Minister said she hoped these measures would help to push power out of Whitehall after years of successive Tory governments “hoarding power” and end the “Dragons’ Den” style of councils bidding for competitive funding pots.

“For all the promises about localism and levelling up, there was an assumption that if something needed doing it should be done from Whitehall, with central Government hoarding power, micro-managing you, intervening in an unco-ordinated and unhelpful way,” she said.

“A begging bowl system of wasteful, competitive pots that led to councils bidding to pay for chess tables in public parks.

“No more. We’re turning the page on this failed approach.”

Chairwoman of the LGA Louise Gittins welcomed the Government’s “(action) on our call for a relationship reset and a new way of working with local government”.

“As we set out in our Local Government White Paper, it is time for a new, equal and respectful partnership between local and central government,” she said.

“Meeting the challenges of the coming decade will require a new, joined-up and strengthened system of governance that is sharply focused on improving people’s lives.

“The Leaders’ Council will enable local government to bring its frontline expertise and experience to the table and help to ensure we can deliver on the issues that matter most to local communities, providing solutions to the complex challenges we face as a nation.”

A Conservative Party spokesman said: “The Conservative government put the power in the hands of those who’d use it the best, local mayors and councils across England, cutting red tape, and delivering right across the country.

“Now Labour plan to undo this, handing the reins to micro-managers in Whitehall, all dancing to the tune of ‘Local Growth Plans’ – no doubt needing councils to do whatever the Treasury tells them.

“Labour’s scheme on procurement and trade union laws will drown local services in red tape, leading to worse services for everyone.”