Laura Sharman 22 July 2015

Councils failed to see risks of LOBO loans, MPs told

Councils failed to see risks of LOBO loans, MPs told image

Councils were persuaded to take out £15bn in high interest loans despite no officers in local government understanding the risks involved, a committee of MPs have been told.

The Communities and Local Government Select Committee has heard evidence on the use of Lender Option Borrower Option (LOBO) loans by local government, following the damning investigation by C4 Dispatches. The programme revealed how 250 councils have taken up to £15bn in LOBO loans, with interest rates of more than 7% in some cases.

The Committee was told that some councils had paid brokerage fees of £25,000 in some instances, compared to £75 for the equivalent Public Works Loan Board (PWLB) loans.

Abhishek Sachdev, CEO of Vedanta Hedging, told the inquiry: 'I would categorically say I don’t believe you could find a finance officer or treasury officer in a council who could assess the risks and rewards of these LOBO products. Even FTSE 250 businesses wouldn’t be able to analyse these on their own.’

Debt Resistance UK (DRUK), who conducted the freedom of information request for Dispatches, said it was disappointed the Committee has not announced a fill inquiry into the matter but is instead allowing banks and brokers to submit written evidence in private.

Joel Benjamin of DRUK said: ‘Billions of pounds of taxpayer money is ultimately at stake here, with serious questions of impropriety to be answered. Parliament must fully scrutinise public sector borrowing from City of London banks and address conflicts of interest with the unregulated financial advisors that recommend LOBOs whilst accepting undeclared kickback payments from banks and brokers.’

DRUK is calling for a UK wide audit of local authority debts and a thorough regulatory investigation into the ‘systemic abuse’ of local authority finance by the financial sector.

‘This is not a campaign against local government', said Ludovica Rogers from DRUK. ‘It is a campaign to reclaim our democratic institutions from the clutches of the financial sector. We need to keep the pressure up and insist that our local authorities are run in the interest of their citizens and not the interests of the City of London.’

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