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07.07.15

Betts calls for inquiry into councils’ £15bn LOBO loans

The chairman of the communities and local government select committee, which scrutinises local government, has called for a national inquiry into how more than 200 councils were sold £15bn of high interest loans. 

Following a Channel 4 Dispatches programme last night, it was stated that around 240 local authorities have taken up to £15bn in Lender Option Borrower Option (LOBO) loans from private banks, which in some cases charge interest rates of more than 7%. 

It was also noted that the expensive exit fees make it difficult for councils to get out of the loans, which run for between 40 and 70 years. 

Clive Betts MP, chairman of the communities and local government select committee, said: “I think this is very much an issue which my committee would want to look into. There is clearly the need for a tougher regulatory framework.” 

Betts also called on the Financial Conduct Authority to investigate “outrageous” claims that City firms paid to provide councils with independent financial advice were receiving commission from brokers if local authorities took out a LOBO loan. 

The Dispatches documentary revealed that Newham Council has the biggest portfolio of LOBO loans totalling £563m. 

The most expensive loan for councils is known as the “inverse floater”. These have interest payments “tied to a complex formula designed to reduce the interest payments if rates go up”, the news programme revealed. 

But while a spokeswoman for Newham Council confirmed it had a “diverse range” of LOBO loans, less than a third of these were of the “inverse floater” type. 

The Local Government Association said LOBO loans are a “legitimate” financial instrument and their use should be assessed in the context of a council’s entire debt profile and not in isolation. 

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