Council paying "extortionate interest" on expensive risky loans

Rochdale Borough Council

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.

Local Authorities rely on private sector advisers to structure, broker, advise on and manage their financial affairs. These firms, known as Treasury Management Advisers (TMA) charge high fees, whilst encouraging council treasurers to "behave like short term, profit driven, investment bankers", says Andrew Wastling, who alerted Rochdale Online.

Mr Wastling added: "Is Rochdale Council really securing the best deal for local tax payers and ensuring local government finances in Rochdale are done with due diligence, transparency and financial competence - or are they simply lining the pockets of already wealthy bankers with hard pressed local taxpayers money?

A spokesperson for the Council said: “The Council currently has outstanding loans of £141m which has enabled the Council to invest in the assets of the borough, when compared to the long term assets for Rochdale Council of £816m (as at 31 March) this level of borrowing is prudent.

"The investment has enabled the Council to develop Rochdale Town Centre, invest in our leisure facilities and regeneration in the borough.

"LOBO loans were entered into by many councils across the country as a means of financing Capital Investment.

"At the time the loans were entered into they were cheaper than equivalent loans available to the Council.

"Our external auditors have signed off our accounts each year up to the 2015/16 accounts (we are awaiting the certificate on the 2016/17 accounts) as they were satisfied that our LOBO loan decision was taken in line with all relevant strategies, policies and codes of practice.

"At the time they were seen as value for money compared to other borrowing options.”