PHILIP Hammond must ditch the debt owed by Scottish councils to the UK Treasury to prove staying in the Union pays, according to the deputy leader of Scottish Labour.

Alex Rowley MSP has urged the Chancellor to grant an amnesty on historic debts to show “clear intent” that the Tory government will make sure “Scotland benefits from the pooling and sharing of UK resources”.

Earlier this year Unite, Scotland’s largest trade union, launched a campaign on the issue, claiming an amnesty on the £2.5 billion pre-devolution debt owed to the Treasury’s Public Works Loan Board (PWLB) could reduce the repayments from the country’s councils by 10p in every £1. The sum is enough to invest £194 million a year in services and, according to the union, Scotland has already repaid £3.3bn in the 17 years since devolution. At eight per cent, the interest rates charged by the PWLB – set by the then-Tory UK Government – are around double that set now.

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In a letter asking Hammond to act, Rowley says the “outdated burden” is hitting services and hampering progress.

The Mid-Scotland and Fife MSP said: “As a result of repeated cuts from both UK and Scottish Governments, Scottish local authorities are facing more straitened financial circumstances than at any time since devolution.

“Despite being intended as a fresh start for Scotland, debt which predates the devolution settlement remains a burden on councils across the country. I therefore urge you to grant a debt amnesty on the debt owed to the PWLB from Scottish local authorities which remains a historic and outdated burden.”

The letter continues: “The pre-devolution interest rates for loans from the PWLB were not set independently by either the Bank of England nor the PWLB themselves, but by the Conservative government.

“Were you to agree to grant an amnesty on the pre-devolution debt liabilities of Scottish local authorities, the millions of pounds being transferred from one arm of government to another could instead be invested in services in Scottish communities. This would signal a clear intent that your government will continue to ensure that Scotland benefits from the pooling and sharing of UK resources.

“You will no doubt appreciate that with the new powers being delivered to Scotland, more responsibility for decisions can be taken here in the future, but this can only truly be fulfilled with the release of the historic unfair burden which continues to impact on Scottish local authorities.”

Rowley – whose Scottish Parliament motion on the subject has received cross-party support – said: “We are seeing councils across Scotland facing cuts from Westminster and Holyrood. This means cuts to local services that can be vital for communities. I believe there is a need for action to address the level of sustained cuts to local government finances.

“If we take action on tackling this historic and outdated debt owed by councils, and the Chancellor agrees to my call for a debt amnesty, we can stop transferring money from one arm of government to another and instead use that money to invest in our communities.

“Scottish devolution was intended to be a new beginning for Scotland, and as such this historic financial burden imposed by the Conservative government should be dropped.”

“Not only that, but the initial sum has more than been paid back in interest alone in the years since devolution. Instead, we can use this money to try and mitigate the worst of the cuts imposed by the current UK and Scottish governments.”

The Treasury has stated there are “no plans” to change repayment plans and last month Tory local government spokesperson Graham Simpson MSP said doing so would “send a shocking message to everyone else on fiscal responsibility”, adding: “We’d be as well telling councils to just waste as much cash as they like because, one day, a government will come along and pick up the tab.”