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SCOTTISH councils are spending almost half their tax revenue to deal with interest on a £11.5billion loan debt.

This ranges from 17 per cent of total council tax income to 103 per cent in the Western Isles.

It means taxpayers’ money is being taken from local services to repay banks and the Treasury.

The size of the payments led to calls last night for the UK Government to cancel the debt and let Holyrood develop a new system.

A report by the Scottish Greens says local authorities were pushed into high-risk bank loans, known as LOBOs (Lender Option Borrower Option), when George Osborne was chancellor.

He bumped up interest rates at the Government-backed public works loan board to remove debt from his balance sheet in 2010.

It means the banks who caused the global financial crisis are benefitting from high interest loans and steep exit fees from UK local authorities.

Three of the top 10 LOBO borrowers are Scottish councils.

Scotland has the highest proportion of private-finance loan debt in the world.

Greens co-convener Patrick Harvie said: “It’s unacceptable councils are using council tax revenue to deal with historic debts that enrich private banks and the UK Treasury.

“The unethical nature of the loans from private banks justifies cancellation of these payments, and the UK Government should write off council debts to end the unfair squeeze on services.

The report, Local Government Debt in Scotland, shows some councils are facing up to nine per cent interest rates.

Total debt from LOBOs is £2.4billion while loan board debt stood at £9billion.

On average, 42 per cent of money raised by council tax goes back to the Treasury.

Glasgow spends 55 per cent, Aberdeen spends 30 per cent, while it’s 50 per cent in Edinburgh and 55 per cent in Dundee.

Local government group COSLA said: “Councils are extremely responsible with regard to borrowing money and they work to a code in managing their borrowing.”

A Treasury spokesman said: “Historic debt is the responsibility of local authorities. The Government have no plans to change this position.”