Councils prepare to resist complaints their LOBO loans are ‘irrational’
0A group of 24 local authorities is set to fight complaints to their auditors that their Lender Option Borrower Option Loans are unlawful.
Campaign group Debt Resistance UK (DRUK) has coordinated complaints by residents of the authorities, who have mounted objections under the 2014 Local Audit and Accountability Act.
Auditors for the authorities, which have a combined total of £4.9bn of LOBO loans, will now decide whether to investigate the claim that the loans were “irrational”.
DRUK researcher Joel Benjamin said: “Our research shows councils do have options, but councils are instead making the political choice that citizens wear the costs of the banking crisis, not the banks that caused it.”
“A significant proportion of the £15bn in LOBO loans taken out by councils amounts to ‘irrational expenditure’ and should be cancelled, freeing up councils to refinance at lower rates of interest, making funds available for social housing and maintaining public services.”
Under the 2014 act, a local government elector can ask the external auditor to apply to the High Court for a declaration that an item within its council’s accounts is unlawful.
Irrational spending is defined as that which is so wholly unreasonable that no reasonable person could have made that decision.
When deciding whether to apply for a judge’s declaration, the external auditor weighs the possible public interest benefits of going to court against the likely costs.
Bhupinder Chana, principle finance manager at Leeds City Council, said that the council was likely to reject the claim that its £445m of LOBO loans were taken out irrationally.
He said: “At the time we took these loans, the comparator was the Public Works Loan Board and the LOBOs provided a lower borrowing cost. There is a cost to breaking out of the loans, but that is the same for the PWLB.
“While it is a sizeable book, auditors have been through our accounts in previous years and allowed LOBOs as a proper way to raise finance.”
He said that the council is also checking to establish whether the Leeds objector was on the electoral role at the relevant time necessary to make a valid objection.
A statement from one of the auditors, KPMG, said: “We can confirm that we have received a number of objections in relation to local authority accounts.
“As part of our role as auditors and, in accordance with National Audit Office guidance, we are in the process of considering these objections.
“We will then respond directly to the objector and the local authorities.”
An Audit Scotland spokesman said: “We do not have powers to overturn previous decisions made by councils. But we do carry out annual audits for every council where we look at the adequacy of arrangements to ensure that their overall financial position is sound.
“This includes examining financial performance, compliance with financial requirements and targets, and future financial plans. Were the correspondence to result in further examination by the auditors, and any significant audit findings arose, these would be reported in annual audit reports, which are made public.”
The councils affected by the LOBO objections are: Brent, Brighton & Hove UA, Bristol, Camden, City of Edinburgh, City of Glasgow, Cornwall UA, Greenwich, Haringey, Hounslow, Kent, Kingston upon Hull, Lancashire, Leeds, Lewisham, Liverpool, Manchester, Medway Towns UA, Newcastle upon Tyne, Newham, Oxfordshire, Portsmouth UA, Tower Hamlets and Wirral.
A local objector who was quoted in a DRUK press release said: “The use of Lender Option Borrower Option instruments without appropriate justification compromises the work of section 151 officers.
“They should exercise more prudence to the risks that they are exposing local authorities to.”
