Labour’s political opponents have accused the party of financial mismanagement after it emerged Scotland’s biggest local authority faces financial meltdown.
The criticism follows reports that Labour run Glasgow Council is facing the prospect of losses totalling tens of millions of pounds as a result of a planned overhaul of its Arms Length External Organisations (ALEOs).
The concerns centre on a proposal to merge two ALEOs, City Parking and City Property, early next year. However there are fears that any such plan would be seen as a default on banking loans that would result in interest payments increasing.
City Parking has cash flow problems but cannot seek funding from any other bank without having the existing loan interest renegotiated upwards by Lloyds. The body was set up in 2007 with a loan of £50 million; it has a revenue stream of £7 million per year.
The council are now planning to inject a further £1.2 million into the struggling organisation.
The scale of the problem emerged after the council’s lawyers briefed non-Labour councillors on possible scenarios should the proposals go ahead.
SNP group leader Alison Hunter claimed that Labour had created the complex network of organisations without thinking through the long term impact and were now dealing with consequences of their mismanagement.
She added: “If Labour had listened to the SNP back when they forced these through, we would not be in the situation now whereby we are dependent on negotiations with banks to sort out our own structures.”
The controversial organisations hit the headlines last year after it emerged that public cash had been spent on Labour party fundraising events and lucrative contracts had been awarded to Labour party donors.
Hundreds of thousands of pounds worth of payments were also made to mainly Labour councillors who sat on the boards of the organisations. The practice was recently outlawed by the SNP government.
SNP MSP Sandra White, who represents the city’s Kelvin district, described the situation as a shambles and claimed the ALEOs were created after Labour saw the opportunity of a “quick buck”.
Warning of a loss of services and possible job cuts Ms White said:
“They were warned by myself and my colleagues in the SNP that it was only going to cause services to suffer and was not commercially viable in the long term – but they didn’t listen.
“It will be the people of Glasgow that suffer with job cuts and impoverished services and while unelected and unaccountable bosses continue to take big pay packets home.
“The people of Scotland’s biggest city deserve better. They, the people of Glasgow, will decide in next year’s council elections if they want responsible accountable council governance or more of the same from the Labour asset-strippers that have been selling off the city’s assets for too long.”
ALEOs were the brainchild of disgraced former council leader Steven Purcell. The organisations administered the same public services as before, but crucially the arms-length nature allowed them to compete for contracts outwith the local authority.
However suspicions grew that they were being used as a form of political patronage with councillors able to augment their salary by up to £17,000 for simply attending board meetings. Glasgow council was the only local authority in Scotland to operate such a scheme.
It also emerged that many lucrative corporate positions within one ALEOs, City Building, had gone to people with links to the Labour party. City Building also spent over £50,000 on exhibition space at Labour conferences.
In April 2010 the wages bill for the Arms-Length bodies was calculated at over £400,000 – more than would have been the case had they remained ‘in house’, under direct council control.