The Shetland Times today launches a campaign aimed at getting the UK and Scottish governments to honour past promises to wipe out the SIC’s £40 million housing debt.
If a solution is not found in the next few months, council officials warn nearly 2,000 tenants face the alarming prospect of rents going up by 10 per cent or more next April.
Isles council house occupants already pay the second highest rents in Scotland, largely a result of the colossal debt. With many already struggling with the cost of living, tenants could face having to find an extra £7 a week, on average.
The debt was largely chalked up building houses to cope with an influx of oil industry workers. Between 1974 and 1989 the council built over 1,000 new homes throughout the islands as the population swelled by 37 per cent.
Since then ministers north and south of the border have repeatedly acknowledged the state’s moral obligation to cover the debt. But every attempt to barter a solution has failed – often due to untimely changes of government.
Shetland Tenants’ Forum secretary Joann Johnson said council house residents would “suffer severely” if the government does not step in. The debt is “hanging over our heads through no fault of our own”.
“Many tenants will not be able to pay the increase,” she said. “The housing debt is not of the tenants’ making. It is of the UK government in the 1970s putting pressure on the SIC to get oil flowing through Sullom Voe at whatever cost.”
Amid huge public spending cuts, addressing the housing debt is among the most pressing issues facing the islands.
Shetland Times editor Adam Civico said he hoped everyone in the community would rally behind the campaign.
“We are urging everyone to sign our petition to send the strongest message possible to government,” he said.
“Many social housing tenants already face a struggle to pay the bills every month. It would be grossly unfair if they were lumbered with another rent rise because of UK ministers’ rush to get North Sea oil up and running four decades ago.
“Our message to politicians at Westminster and Holyrood is simple: keep your predecessors’ word and, one way or another, write this debt off.”
Having axed the SIC’s housing support grant last year, the Scottish government has offered £840,000 interim funding for 12 months. For years, the grant helped cover annual interest payments on the debt.
Despite that, almost two-thirds of rent paid by SIC tenants in 2013/14 will be used to cover debt charges.
If the problem is not resolved, housing chief Anita Jamieson says rents face a “minimum” rise of 10 per cent. She fears it is “likely to be higher”.
In the late 60s and early 70s, the discovery of “black gold” was seen as crucial to revitalising the UK’s ailing economy.
To support the UK government’s desire to get oil flowing quickly, the SIC borrowed roughly £50 million on its housing revenue account to build hundreds of new homes.
In April 1974 Scottish Office minister Bruce Millan assured the old Zetland County Council that the government would do “everything possible to resolve any difficulties” arising from construction work.
A string of governments have since paid lip-service to the council’s efforts to smooth the path for North Sea oil developments – without ever handing over a cheque.
While the community made massive gains from oil local politicians point out that Shetland’s benefits were a fraction of the £300 billion of tax revenues that have flowed to the UK Treasury in the past four decades.
The debt problem worsened in the wake of the Thatcher government offering council house tenants the “right to buy”.
Since 1980 the SIC has sold over 1,500 homes to tenants at discounted prices. That caused rental income to plummet by around £5 million a year, while the housing revenue account remained saddled with debts.
It explains the abnormally high burden, debt of £23,000 per house, now weighing heavily on the shoulders of the remaining 1,800 tenants.
After talks with Westminster and then Holyrood either side of the millennium floundered, the issue largely disappeared from public view.
It returned to the spotlight following a chance encounter between councillor Allison Duncan and UK chancellor George Osborne at Inverness Airport in December 2011.
That sparked fresh dialogue with civil servants, culminating in a six-strong council delegation lobbying UK government representatives at Downing Street five months ago.
A briefing paper presented to ministers stated: “It could be said that the tenants of Shetland are paying dearly for the billions of tonnes of crude oil which has passed through Sullom Voe and into the government’s coffers.
“That injustice is still sorely felt by Shetlanders who had to endure significant disruption and upheaval during the construction of Europe’s largest oil terminal.”
Three-way discussions have since ensued between Lerwick, Edinburgh and London. And with the Scottish Cabinet due to visit Shetland in July many feel now is the time to make progress.
Council convener Malcolm Bell warmly welcomed this newspaper’s campaign. He feels the islands are paying a high price for the initial outlay to assist in the first oil boom.
Mr Bell said: “The whole of the UK has benefited, many times over, from the sacrifice we made to allow construction work to take place during the 1970s.
“It is vital, as we enter another construction boom some 40 years on, that the governments work with us to find a permanent solution.
“It is simply not fair for this small community, and in particular our tenants, to be left shouldering that burden.”
SIC head of finance James Gray pointed out that even hiking those tenants’ rent by 10 per cent would only stabilise the debt. Under such a scenario, he estimated it would still stand at around £40 million by the middle of the century.
Mr Gray said historically low interest rates have eased the debt burden slightly. But a one per cent rise in interest rates would add £450,000-a-year to the bill – the equivalent of another £5 a week from every tenant to cover higher payments to service the debt.
An estimated 500-750 affordable homes are needed in the next decade. Ms Jamieson said the debt’s presence makes it unlikely the SIC will be able to build any – leaving only Hjaltland Housing and private developers to bridge the gap.
Alternative options to address the debt are thin on the ground. The housing department’s repairs service has already been stripped back: scope for further cuts is “severely limited” if the SIC is to meet its duty to maintain warm, comfortable and energy-efficient homes.
A Holyrood committee suggested some of Shetland’s oil money could be used to reduce the debt. But years of overspending mean the council already faces a battle to safeguard the reserves, which it continues to rely on at an unsustainable level.
If it did pay off some of the debt, it would lose the income it currently gets from investing the reserves on the stock market.
Mr Gray said every £1 million taken out would create the need for £57,500-a-year cutbacks. If the entire £40 million was paid off, the reserves would shrink by a sixth and £2.3 million of annual income would be lost forever.
In today’s paper: The timeline of how the debt built up and the views of tenants Susanne Willshaw and Joann Johnson.