Parliament’s LOBO inquiry excludes council officers

No council finance officers have been invited to give evidence at a hastily-arranged Parliamentary inquiry into lender option borrower option loans (LOBOs).

Earlier this week, the House of Commons Communities and Local Government Committee announced it would hold a hearing on Monday following a Channel 4 documentary into the issue broadcast last Monday.

The only witnesses invited to take part in the hearing are Anthony Barnett, the journalist who made the programme, and two interviewees who voiced criticisms of LOBOs during the programme.

A statement from the committee said: “On 6 July 2015 a Channel 4 Dispatches programme revealed that many local authorities had taken out loans from banks for which councils were paying high interest rates and which many councils were locked into because of expensive ‘break’ clauses.”

It said that the loans were taken out between 2003 and 2011 “when councils believed interest rates would remain high” and quoted an estimate which featured in the Dispatches episode that banks made more than £1bn in profits on the first day the loans were taken out.

Last week, committee chairman Clive Betts said that he would like to investigate how LOBO loans were sold to local authorities, how officers reported the loans to councillors and whether the Financial Conduct Authority should have responsibility for regulating them in future.

In addition to Barnett, the committee will also hear from Abhishek Sachdev, chief executive of Vedanta Hedging and Rob Carver, a former derivatives trader at Barclays Capital – both of whom appeared in the Dispatches programme.

When contacted by Room151, a spokesman for the committee said that he was not expecting any further hearings or a call for written evidence to be announced in advance of Monday’s hearing.

This week, Mike Jensen, chief investment officer at Lancashire County Pension Fund, said that some critics of LOBOs had made incorrect assumptions about the vehicle.

He said: “It is believed that, with the exception of the cancellation in error of one deal made by the administrators of a defunct German lender, councils have not suffered losses on a single LOBO – the banks have either lost money or are incurring very heavy capital charges on these loans.”

He also said that break costs under the Public Works Loan Board are at least as expensive as LOBOs and that long-dated debt is appropriate for councils funding infrastructure projects.

He added that, looking at the likely path of rates, councils should tear up all LOBOs if the lender’s option is triggered, and move to a floating interest rate loan.

Ludovica Rogers from campaign group Debt Resistance UK, which assisted the makers of the Dispatches programme by making Freedom of Information requests to councils, said she had little faith that the inquiry would “deliver the required regulatory and structural change”.

She said: “DRUK is calling for a UK-wide audit of local authority debts, a thorough regulatory investigation into the systemic abuse of local authority finance by the financial sector and, where appropriate, legal and enforcement action.

“This is not a campaign against local government. It is a campaign to reclaim our democratic institutions from the clutches of the financial sector.

“We need to keep the pressure up and insist that our local authorities are run in the interest of their citizens and not the interests of the City of London.”