Councils could lose £16bn from LOBO loans as McDonnell calls for government investigation

Controversial LOBO loans could cost councils as much as £16bn, according to new research, which has prompted the shadow chancellor John McDonnell to call for a government investigation into the high-interest and risky loans.

Analysis from the investigative cooperative Research for Action shows that 240 local authorities involved with the complex borrowing schemes – called Lender Option Borrower Option – could lose £16bn in savings over the lifetime of the loans if they don’t refinance them, and that the 10 biggest borrowers of these “risky and expensive” bank loans could save £4bn over 40 years by refinancing.

Research for Action said these savings could “relieve pressure on strained austerity budgets, free up cash for local services and prevent further unnecessary cuts.”

Responding to the findings, John McDonnell told the Guardian: “The government has a role to play now in ensuring there is a full, independent and open investigation into the use of these financial instruments and action taken to restore any historic loss to the public purse.”

Earlier this month, both Kent and Northamptonshire County Council announced they will be refinancing their LOBO loans taken out from the state-owned RBS.

Kent CC’s refinanced LOBO loans are worth £60m at around 4.2% interest, mostly with a loan from the government Public Works Loan Board, and Northamptonshire did the same with a £20m LOBO loan.

The council holding the most LOBO debt is Newham council with £563m of debt and a potential total savings of £945m.

McDonnell echoes the chairman of the Housing, Communities and Local Government Committee, Clive Betts, who called for an inquiry into the loans back in July.

Lancashire County Council recently had its accounts held up over a controversial £50m LOBO loan from 2010, before they were finally approved in August.

Top image: Kirsty O'Connor via PA Images 

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