Letter: 20% of our Council Tax is already spent paying back 'toxic' loans
Date published: 19 February 2018
Council Lender Option Borrower Option loan debts
Despite expecting an increase, like many people in Rochdale I read the recent Rochdale Online article, 'Council tax to increase by a whopping 5.58%', with a mixture of disbelief and anger.
To charge more for obviously less services is not something any economically literate or truly democratically accountable council can justify to its local population for any length of time and get away with it at each and every election.
To add insult to injury, as we reluctantly pay this totally outrageous 5.58% council tax hike, we need to be aware that the UK Debt Resistance has revealed that Rochdale Council has Lender Option Borrower Option (LOBO) loan debts of £210.14m amounting to £993 of debt per person in our borough. This means one fifth,or 20%, of local tax payers council tax is being spent on debt repayments at the same time as essential public services are being stripped to the very marrow.
I read also with considerable alarm that Rochdale Council is in the top fifty councils for LOBO loans in the UK Debt Resistance UK has helpfully listed the UK councils which have a Lender Option Borrower Option Loan. A LOBO loan is typically a very long-term loan – for example 40 to 70 years.
As reported previously on Rochdale Online: 'Rochdale Borough Council is paying "extortionate interest" on expensive risky loans that it is locked into.
The Council has accrued over £130 million in Lender Option Borrower Option (LOBO) loans, containing derivatives provided by banks to public authorities',
With these toxic LOBO loans, the interest rate is initially fixed, but the lender has the ' option ' to propose or impose, on pre-determined future dates, such as every five years, a new fixed rate. The borrower has the 'option' to either accept the new rate or repay the entire loan. Why does this matter to us? Well the now bust Northamptonshire County Council is paying £68 million a year on all of its loans, including 19 LOBO loans.
These LOBO loans 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 has said it would cost £256m to repay them straight away. It would cost more than a quarter of a billion pounds to immediately repay the LOBO loans. An impossible task. This is why such loans are referred to as ' toxic' by their critics.
In short, we are being royally ripped off.
It is bad enough that the local taxpayer is shelling out to subsidise the dependency culture to support the lifestyles of our local councillors, with their totally unjustified expenses pay rises, without having to pay back badly advised loans for the next several decades.
I understand that constantly circulating rumours of Rochdale Council possibly being put on Special Measures by the Westminster Government when the CSE Investigation reports back in a few months’ time include the prospect of an independent audit of Council finances by central government. If that is the case it should address the issue of LOBO loans as part of their remit without fail.
The views expressed are those of the author of the letter and not those of Rochdale Online.