National and Devolved Politics

04.06.18

Two Dorset councils take out ‘fraudulent’ high-risk loans worth over £120m

Dorset councils have taken out controversial bank loans worth millions of pounds.

Campaign group Debt Resistance UK revealed that Dorset County Council and Weymouth and Portland Borough Council have taken out £123m of Lender Option Borrower Option loans (LOBOs) in an effort to reduce their debts.

Dorset County Council took out £95.9m, while Weymouth and Portland Borough Council took £17m over a decade ago to the end of the 15/16 financial year.

The LOBOs, which were uncovered on Channel 4’s Dispatches documentary series, allow private banks to propose or impose a new fixed rate on a pre-determined future start date.

The borrower can choose to accept the rate or repay the loan in full, but there are no breakage penalties at this point. Breakage penalties only apply if the borrower wants to repay at another point in time or when the rate is not changed – the same as a fixed rate loan would be.

Last month the Chartered Institute of Public Finance and Accountancy (CIPFA) urged local councils to review their LOBO loans after auditing firms expressed concern at their impact on local authorities’ accounts. Channel 4's Dispatches found that over 200 authorities had used the loans, totalling up to £15bn.

Cllr John Whitworth, chair of the Newham Council Scrutiny Committee, labelled the LOBO loans a “fraud on the people,” arguing that many local authorities took out the loans when they were struggling financially during the economic downturn in 2008. He added that the loans became “a very serious handicap” on councils dealing with austerity in later years.

Debt Resistance UK campaigner Joel Benjamin noted: “it is always cheaper for government to borrow than banks, and that PFI and by extension LOBO loans are therefore a fraud.”

 Cllr Jeff Cant, Leader of Weymouth & Portland Borough Council, said: “The council carefully considers the short and long term effects of all funding options before any decision is taken.

“We have a sound financial management strategy in place. This has enabled us to balance our budget and continue to invest in ambitious regeneration plans as we look at major projects to improve our borough.”

Last week the creation the of Christchurch and Poole Council and Dorset Council was approved. The deal is expected to deliver £108m in savings.

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CORRECTION: Corrections were made to this article. A comment by Weymouth & Portland Borough Council has been inserted, loans taken from Weymouth & Portlant Borough Council has been adjusted from £27m to £17m. Clarity has been given to the repayment process of a LOBO loan. Savings predicted have been adjusted from £6m to £108m.

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