James Gibb Stuart

A "Local Voucher Scheme" is one method whereby a local authority could cut down on its expensive short-term borrowing, and thereby alleviate the effects of the escalating Local Authority Debt.

The prime need for any debt-laden authority, whether it be Government, Region or Local Authority, is to devise some means of monetizing its considerable resources so as to create purchasing power without further resort to borrowing.

If this seems a difficult idea to grasp at first, perhaps it will be better illustrated by a practical example.

The most notable case of a small authority taking its financial destiny into its own hands was during the famous Guernsey Experiment of the early 19th century. As related in Chapter 6 of The Money Bomb, the little Channel Island of Guernsey was in a very poor state at the end of the Napoleonic Wars.

Much of its fertile coastland was threatened by inundation from the sea, its roads were nothing better than rutted tracks, even its ancient church was falling down through dilapidation, and there wasn't even a decent market for the display and distribution of island produce.

Much needed to be done - and with the young men returning from the wars, there were plenty of willing hands to do it. But Guernsey had one apparently intractable problem - there was no money. The island had a long-standing public debt of about £19,000, with annual interest payments of approximately £2,400. Total revenue in those days came to less than £3,000, so there was a bare minimum left for administration expenses, and nothing for such essential projects as the repairs to the sea wall, which had been estimated at £10,000.

In Glasgow parlance, Guernsey was skint - with mounting unemployment and misery round its shores.

So what did the island council do? Self-help was possibly an option which had already occurred to them when they appointed a committee to consider the problem.

And that committee contained at least one financial genius, for its findings were to make history.

It recommended that the States of Guernsey, the island parliament, should make a preliminary issue of its own currency for essential public projects, the money to be redeemed from taxes over the ensuing two years.

The first issue was £4,000 in Guernsey £1 notes. It was spent on coastal preservation and repairs to Torteval Church. Further issues financed road construction, completion of the sea walls and erection of a covered market, all without incurring a penny of bank debt or interest. By 1829 there was a total of £48,000 of Guernsey's own money in circulation, the economy had been regenerated with full employment, and the local people were trading in their own currency with confidence and enthusiasm because they knew that it was saving them taxes and community debt.


This Guernsey story was the inspiration for Jan Grubiak's Rates Voucher Scheme, which he described in his 1960 booklet The Guernsey Experiment, and which was put to the old Glasgow Corporation later that decade by Peter Cahill.

He and his colleagues in the Scottish Monetary Reform Society realised that they could scarcely expect the local Glasgow authority to start issuing its own banknotes, as this would have infringed upon British Treasury prerogatives, and would have caused an impossible degree of confusion. But Vouchers created for a set purpose, are a different matter.

The proposal was that during the early part of its financial year Glasgow Council should finance a proportion of its expenditure through sterling-denominated Vouchers which would be made acceptable to local shops and businesses, and freely traded throughout the city.

To bring this up to date: Glasgow City Council's total expenditure is 1,384.2m in the year 2005/6, of which 123.8m is interest charges. Of the total, 238.4m is raised through Council Tax (Source: Pay Up for Glasgow: Your council tax and nondomestic rates 2005/6 leaflet).

Interest payments alone are therefore 9% of Glasgow's total expenditure and 52% of the total raised by Council Tax.

If the Council raised an amount in Vouchers equivalent to the interest charges alone -123.8m - in various denominations, and issued them in part payment of wages and local services, it could reduce the Council Tax by more than half!

Some of the Vouchers could be used as payment for Council employees, which they in turn would be able to spend throughout the city. The Vouchers would be acceptable as payment for Council Tax.

This would need the co-operation of the Trade Unions, who hopefully could be persuaded of the merits of the project. It would also require anti-forgery technology, possibly in place everywhere they were exchanged - but in this day and age that should be possible.

The Vouchers would be readily negotiable throughout the area because they had the backing of a responsible authority, and the community would come to prefer them once they understood that trading in Glasgow's own collateral was helping to reduce both council tax and public debt.

There would be no risk of inflation. The same amount of money which would otherwise have been borrowed as a debt will now be raised debt-free. The basis for their issue would be Glasgow's assets, ability and needs.

Like Guernsey, Glasgow would then have that precious control over its own credit which would allow it to stimulate employment and activity where it was most needed.

Jan Grubiak suggested that a local authority Municipal Bank should be set up to coordinate the scheme properly.

It is said that the finance committee which rescued Guernsey's island economy was "roused into action by the urgency of great occasions". Perhaps no such spirit prevails in local government today, and modern finance conveners are very much bound into conventional economic thinking.

Even so, it is a step in the right direction, just to have discussed the problem, and understood what a calamitous effect Local Authority debt has upon the domestic and commercial council taxpayer. If readers have improvements or see any problems with this plan, please contact us.

In the meantime, why not send a copy of this article to your local Councillor, and ask for his or her comments?

– from PROSPERITY, July 2005