“A cash-strapped council which has banned all new spending is currently repaying £150m in “toxic” loans.
Northamptonshire County Council has invoked the ban on expenditure as it faces a £21m overspend for 2017-18. It said it would cost more than a quarter of a billion pounds to immediately repay the LOBO – or Lender Option Borrower Option – loans, described by critics as “risky”.
A council spokesman said “interest rate risk is inherent” in all borrowing.
The county council has a total of 19 LOBO loans, which are unregulated and typically spread over 40 to 70 years. They were used to meet expenditure on highways, infrastructure, schools and other such assets.
The authority said said it would cost £256m to repay them straight away.
Critics say the repayments would be better spent on under threat services such as bus subsidies and Trading Standards. Joel Benjamin, from campaign group Debt Resistance UK, called the loans “toxic”. He said the county council has “fallen victim to a lethal cocktail of cuts”, poorly run shared-services and “high interest, risky LOBO borrowing.” Financial expert Abhishek Sachdev said LOBOs “contained huge quantifiable risk at the outset”.
Mr Sachdev, who gave evidence about LOBOs to the Communities & Local Government Select Committee in 2015, added: “There is a reason why none of our large PLC corporate clients would ever enter into such a loan.”
Freedom of Information requests by Debt Resistance UK show around 1,000 LOBO loans have been taken out across 240 local authorities.
The figures show these have a face value of £15bn, while Mr Sachdev estimated it would cost about £26bn to exit them straight away.”