GMCA treasurer defends use of LOBO loans
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Richard Paver, Manchester Combined Authority
Decisions by local authorities to take out controversial lender option borrower option loans (LOBOs) should not be judged in hindsight, according to the chairman of the Chartered Institute of Public Finance and Accounting (CIPFA) treasury and capital management panel.
In August, Room151 reported that campaign group Debt Resistance UK (DRUK) has coordinated complaints by residents in 24 authorities, who have lodged objections to LOBO loans under the 2014 Local Audit and Accountability Act.
Auditors for the authorities, with a combined total of £4.9bn of LOBO loans, are now deciding whether to investigate the claim that the loans were “irrational”.
However, speaking last week at a CIPFA conference, Richard Paver, treasurer of the Greater Manchester Combined Authority, made a robust defence of his decision to enter LOBO agreements in his previous role at Manchester City Council.
He said: “I took out LOBOs at the time and had a clear strategy as to why; partly because they were cheaper and partly because we were a housing authority so every time we did a stock transfer PWLB debt got written off.
“Given that some of our PWLB debt was running at around 11% and LOBOs were just over four, I didn’t want to take more PWLB debt that government could write off and then leave us with high coupon debt.
“There is a different side to the story than the one that has been raised in the objections to the accounts at my previous authority.”
He said that he has written an account for Manchester — one of the councils facing a challenge — as to why the loans make “continuing financial sense”.
LOBOs were examined by the parliamentary communities and local government committee last year. However, the probe was dropped 
before the production of a report into the issue.
Campaigners claim councils are wasting £145m a year on LOBOs — calculations based on comparing historical high interest rates at which LOBOs were taken out with today’s low rates.
Paver also revealed that discussions had taken place within CIPFA as to whether it should be more involved in the issue. He said: “It is a contentious area that CIPFA has generally stayed away from commenting on.
“We have had conversations within the treasury panel and with Rob Whiteman (CIPFA chief executive) about whether CIPFA should be saying more about LOBOs, particularly in the context of the select committee which Clive Betts chaired.”
