A campaign initiated by the Labour Campaign for Council Housing calls for the government to cancel local-authority debt held by the Public Works Loans Board as an emergency measure to stave off the collapse of council services.

So far nine council leaders and five MPs have signed the statement. Cancellation would give councils £4.5 billion a year extra spending power.

The chief executive of the Chartered Institute of Public Finance & Accountancy warned of councils facing “a financial tsunami of reduced income and increased costs.” He was right. The financial crisis of local authorities is spiralling out of control as councils struggle to respond to the pandemic.

The deadly combination of increased expenditure and collapse of income as a result of the lockdown comes after 10 years of austerity that has severely weakened local authorities. Austerity is to councils what “underlying conditions” are to people who are vulnerable to the virus.

The government told councils to do “whatever it takes” and they would support them. Yet the funding offered so far falls well short of extra spending and lost revenue. The Local Government Association has said that councils need up to four times the funding they have been given so far if they are to cope.

Richard Watts, chair of the LGA resources board said that unless the Secretary of State provides adequate funding, councils and their services “will face an existential crisis.”

If councils issue section 114 notices (a declaration that they have insufficient resources to cover their costs), that will mean blocks on spending this year.

What we are threatened with, this year and next, is a return to austerity for local government, possibly worse than the Osborne version.

While Labour is right to demand that the government covers the full costs of dealing with the pandemic and the loss of income resulting from lockdown, this will not in itself resolve the funding crisis of local authorities. The impact of the pandemic will not be short-lived.

There will be no swift return to the level of income pre-coronavirus. Parking and leisure revenues will not recover quickly and the impact of unemployment will hit collection of council tax and rent. Commercial rent from shopping centres is unlikely to recover from shop closures. Many will not reopen.

Therefore we are calling for cancellation of local-authority debt held by the Public Works Loans Board as a necessary extra measure. This would provide councils with £4.5bn extra spending power a year (the cost of servicing the debt last year).

It is a simple step that would provide significant funding on an annual basis and would help to stabilise council finances. The government itself set a precedent by cancelling £13.4bn NHS debt.

Matthew Brown, leader of Preston Council, one of the signatories of our statement, calls for “a new financial settlement.”

“Labour councils have been worst hit by 10 years of austerity economics and are now in an even worse position as we rightly intervene to protect our communities as a result of the coronavirus pandemic.

“Once the pandemic is over, there must be no return to normal, and we must seek to rebuild our communities as the low-paid, less-well-off and many in our minority communities have been disproportionately affected by it.

“We need a new financial settlement for local government as councils will be at the centre stage of rebuilding local economies from the economic downturn and rising unemployment which will inevitably come.

“I am proud to support the Labour Campaign for Council Housing initiative to cancel all local-authority debt. This is needed to ensure local government survives, but also so councils can play their role to regenerate communities in future years.”

Mick Whitley MP, another signatory, has written to the government, with the support of the other three Wirral MPs, calling for debt cancellation.

Debt cancellation would include housing revenue account (HRA) debt. This would provide HRAs with at least £1.25bn extra a year. As signatory Doina Cornell, Stroud District Council leader, says: “…when the restrictions start to ease, local government will be a crucial part of the recovery. For my own council alone, cancelling our housing debt, for example, which we took on when we acquired our council housing stock, would liberate us to build more council homes, create jobs and invest in our local communities, helping to kick-start the recovery.”

We are asking individuals and organisations to sign the statement calling for cancellation of this debt. It can be found at: www.cancel-local-authority-debt.org.

It is especially important that the local-government unions take up this issue. It is their members, key workers, who have provided crucial services under the most difficult of conditions.

If councils are left with insufficient funds even to carry out their legal duties, then the social consequences will be disastrous both for those who provide the services and those who are likely to lose them.

In conclusion, the unions and Labour need to demand that the government does the following:

1) provides funding to cover the cost of dealing with the pandemic and the loss of income resulting from the lockdown.

2) cancels local-authority debt, providing £4.5bn a year extra spending power, and demands urgent talks on the need for a funding system for councils that is based on an annual assessment of social needs in each locality.

Martin Wicks is secretary of Labour Campaign for Council Housing.