One Year In - Tackling the Housing Crisis

A year since I was re-elected by residents of West Ham for a third term as a Newham Councillor and then appointed by directly elected Mayor, Rokhsana Fiaz, as Cabinet lead for Housing Services. The most demanding but also the most fulfilling year of my life so far. Put headphone on to listen to video. More to follow.

Newham Mayor Rokhsana Fiaz "Today marks One. Year. In. as the Mayor of Newham! There’s more to do, but we’re already delivering and here’s a message to Newham residents that we published earlier:

​​‘Today marks a year since I stepped into office as Mayor of Newham. I wanted to say thank you for giving me and my administration the opportunity to put you at the heart of everything we do as a Council.​

You’ll be able to see some of the things we’ve achieved from a series of #DeliveringForNewham messages on social media, including the one below on housing. At next week’s Annual Council Meeting on 16 May I’ll also be outlining some of my plans for what happens next.

It’s certainly been a momentous first year, with some real highlights – getting my administration’s first Budget agreed, along with a new corporate plan (the first in several years) and a structure for the Council that will support the delivery of the promises I made to you when I was elected last May. We’ve driven forward an agenda of improving transparency and accountability, alongside involving residents in decision-making through the amazing Citizen Assemblies that we’ve held across borough.

We now have robust plans under way to deal with the housing crisis we face in Newham; I’ve laid down a huge marker about how we intend to deal with the climate emergency; and we’ve made a commitment to become a living wage council. We’re addressing poverty, tackling inequality and sharing economic prosperity through our Community Wealth Building agenda. Which means that investment coming into Newham, and already in the borough, benefits all our residents.

I’ve also announced great news relating to my promise to Newham voters that I would clean up the Council’s budget. A key element of that was to address the scourge of risky LOBO loans taken out before I stepped into office. On Friday, we finalised negotiations with NatWest Bank and I was thrilled to announce that we’ve terminated the RBS LOBO loans taken out under the previous administration, saving us £143 million that can be spent on Newham residents. Over the past ten years that the RBS loans have been in place, it’s cost us an extra £31 million in interest payments, so by terminating these LOBO loans, more money can be spent on services for Newham residents.

You’ll also have noted that my Cabinet and I have put our collective weight behind the children and young people of this borough – we will make sure our young people are safe, coupled with laying down the building blocks for generations to come so that their talent and potential is realised.

Safety of our young people continues to be a big issue for us and that’s why on Saturday, we’ll be holding an inaugural Love Life Gala at The Old Town Hall in Stratford to promote the importance of youth safety in Newham. The Gala promises to be an eclectic evening of food, entertainment and special appearances by renowned artists. All funds raised will be used to provide recuperative programmes and experiences for children and young people in Newham.

It’s also been a year peppered with challenges, which is why we’ll continue to drive changes at the Council so that we improve the way it serves our residents. There’s also been some low points in our borough, which is why I am humbled by the unity and resolve of our community following the horrendous attacks in Christchurch and Sri Lanka. We’re strengthened by coming together and I’m proud that Newham is a place where people embrace our diversity so positively.

When I was elected last year, I thanked Newham residents for putting their faith and trust in me; and in my vision for the borough. We’re already delivering for Newham residents, but there’s a lot more to do.

So I promise you this: as I progress through the second year of my administration, I’ll strive to achieve and deliver the best for you, your family and our community. Because the people of Newham are at the heart of everything I do. ‘

If a Police Officer can have his pension scammed then is anyone safe under Tory "Pension freedoms" ?

Check out this BBC report about a serving Police Officer who was cheated out of his pension but managed to win £135,000 compensation from the Ombudsman for his fund's failure to properly warn him about risks.  The Police Officer had been "persuaded" by his financial advisor to transfer his very safe and secure government backed Police pension into a completely dodgy scheme which it appears was then "lost or misappropriated".

While some may argue that a Police officer should know better, to me this shows that if a Police Officer can be conned out of their pension, then anyone can and that the Tory (and Lib Dem coalition) so called "Pension freedoms" have enabled con merchants to pray on ordinary peoples lifelong savings.

Since I used to work in financial services I know first hand how convincing and sophisticated these fraudsters are and also how extensive institutional corruption can be. I think that my personal views on institutional LOBO and LIBOR rips offs are well known.

Today there was also reports about the average loss is £91,000 for such pension scam victims and that

• The Financial Conduct Authority's Financial Lives report suggested that 107,000 people aged 55 to 64 could potentially have been victims of pension scams last year

What a complete and utter mess. No wonder ordinary working people have little confidence in our financial services and its regulation.

I am appalled that Sir Steve Webb, the former Penision Minister, who introduced "Pension Freedoms" and now works for the industry is also quoted as blaming pension schemes for these cons and not apparently taking any responsibility himself for the "Pensions freedoms" policy which is facilitating even more cons to happen. 

"Newham declines FOI request for LOBO replacement loan rate"

This is really disappointing news. We are being ripped off by the Banks over our LOBO loans left, right and centre.  This is a national issue not only a Newham issue.

Last night the BBC televised allegations that the Bank of England had been involved in manipulating the Libor rate, which would have impacted negatively on many Newham LOBOS.

Perhaps we should be suing the Bank of England? I don't know to be honest but I do know that we need to find out what is actually going with these loans, be open and transparent and then find a solution.

BY COLIN MARRS
IN 151 NEWS · TREASURY
— 5 APR, 2017

A London council has refused to reveal the rate it is paying on £248.5m of fixed rate borrowing which it has converted from Lender Option Borrower Option (LOBO) loans.

Councillors at London Borough of Newham made a freedom of information request following the council’s announcement in February that it had renegotiated the terms of the LOBOs. The council said that it has saved £94m on interest rates which would otherwise have been payable on the loans. 

But it has rejected a call for clarity on the new fixed rate it will pay. In its response to the FOI request, the council said: “The information requested relates to the specific rate of interest which was negotiated in securing this new financial arrangement.

“Having consulted with the relevant financial institution we consider that in disclosing the fixed interest rate agreed, would be likely to weaken Newham’s bargaining position during future financial and contractual negotiations.

“This could potentially affect the council’s income and budget and essentially, the availability of financial resources for residents and in the delivery of Newham’s services.”

Barclays’ bargaining power on similar or related restructuring processes could also be weakened, the council said.

Newham recognised the public interest in promoting transparency, but said that maintaining the exemption outweighed the public interest in disclosure.

Councillor John Whitworth, which helped submit the FOI request, told Room151: “The executive is being secretive, as it is in all things. It is very difficult for backbench councillors to get information.”

However, he said that disgruntled councillors will continue the fight for information on the financial arrangements relating to the renegotiated LOBOs.

The FOI revealed that the councils were advised by treasury advisers Sector and Butlers on its LOBO loans portfolio.

It also said that Allen & Overy had provided legal advice while JC Rathbone & Associates and Ernst & Young had provided independent financial advice on the deal.

No fees were paid to brokers carrying out the LOBO deals, according to the council’s response.

Nick Dunbar, founder and editor of the Risky Finance website, was sceptical about the latest deal. He said: “Given that most of Newham’s Barclays LOBOs were of the highly complex ‘range LOBO’ variety with rates currently as high as 7.6%, it might have been a more fruitful strategy for the council to have disputed the entire break cost on the grounds that the products were mis-sold.

“Instead, the council has seemingly absolved Barclays of legal risk while committing to paying crippling interest rates for 50 years or more.”

Newham ditches LOBOs pledging £94m in savings

This has been one of the most popular stories on the Local Government finance website Room 151 recently. By Colin Marrs. LOBOS is the Spanish name for wolf. 

"Newham Council has agreed a deal with Barclays to switch almost half of its Lender Option Borrower Option (LOBO) loans into fixed rate loans.

The council — which had the biggest LOBO portfolio of any council in the UK — has come under intense pressure from campaigners and featured prominently in a Channel 4 Dispatches programme last year which sought to highlight the cost of LOBOs to the public purse.

Room151 understands the council has now fixed the rate on £248m of its £563m portfolio, following lengthy negotiations between senior officials at the council and the bank.

Lester Hudson, cabinet member for finance, and commercial opportunities, said: “We took out these types of LOBOs as they represented the best deal for the council at the time and (they) have saved us millions of pounds in interest payments.

“They were part of our balanced and award winning strategy which includes a balanced approach to risk.

“As a council, and in line with good stewardship, we are always working to reduce the cost of our borrowing. We have taken independent legal and financial advice on this agreement and it is now the right time for us to restructure these loans.”

In a statement, Newham said it would save £94m in interest payments that it would otherwise have paid on the LOBOs over their remaining life.

This figure was reached by multiplying the current annual interest payments by 60 years — the average term length of the loans.

However, when approached by Room151, the council was unable to confirm the rate agreed on the new loan.

Last year, Barclays announced it would waive its lender option on its £5bn LOBO loan book with local authorities and reduce break costs. It is unclear whether the deal announced by Newham differs from the details in that announcement.

In Newham’s 2015/16 annual accounts, the fair value of the council’s LOBO portfolio was recorded as £1.3bn.

Newham councillor John Gray, who has been critical of the LOBO programme, welcomed the authority’s announcement.

He said: “Previously, the LOBOs skewed the council investment strategy because the council has to have bags of reserves available at each of the options dates.

“We had to have all this money on deposit, in case the bank decided to exercise its option to request a rise in the rate we pay.”

But he added that the “devil will be in the detail”, and questioned whether the renegotiated loans include “inverse” LOBOs, on which the council currently pays its highest rates.

Gray said: “We are asking councillors for further information but I suspect they will try to use commercial confidentiality to prevent us finding out more.”

Newham council said that the new deal would improve its credit position, reducing the cost of future borrowing.

“Moreover, it will further stabilise the council’s future debt costs helping to safeguard council tax from future increases and protecting council services,” it added"

Councillor report to West Ham Labour Party branch meeting

Report for Ward Meeting 6 October 2016

Apologises for the lateness of this report and not attending all of this meeting but after presenting my report and answering any questions, I will go to the Forest Gate North ward meeting where I am the Vice Chair.

Instead of just listing issues and events I have attended in a chronological order (as  I have done in the past)  I have tried this time to report back on “themes” which I think are important and of interest to members. Please let me know what you think about this new format?

Casework

Housing issues continue to dominate casework from surgeries, emails and telephone calls (and even Facebook and twitter). Residents have contacted me about overcrowding, homelessness, pending evictions, urgent health applications, allocations policy, anti-social behaviour, and disrepair. Also planning, parking, council tax benefit, LOBOs, the privatisation of council services and specific complaints about other Council services.

I have managed to help residents get legal advice in order to prevent/suspend evictions and forced moves for Newham homeless families to Birmingham; I have undertaken (with other ward Councillors and residents) housing estate inspections, parking meetings with residents and officers and will be attending a Newham Council Local Development meeting in support of residents over a serious and long running planning dispute.

Council Meetings

I have continued to press the case (with other Councillors) for the Council to take action against the deception and rip off of the Council by the so called LOBO loans by the Banks. We have over £500 million of these toxic 50 year plus loans which were sold to us by the Banks at the same time that some of their staff (who have since been criminally convicted) were fixing interest rates that were detrimental against us. There are also allegations of secret “kickback” payments between various Banks and Council financial advisors over such loans, and we are trying to find out if this affected Newham. In the last financial year the “fair value” (redemption cost) of these loans rose from £1 billion to £1.25 billion. A number of concerned Councillors are trying to get the Executive to agree to meet financial and legal experts who have even offered a possible “no win-no fee” arrangement for Newham to sue the Banks and stop us being ripped off.

I have also submitted a written report to Cabinet and members (copy available) on my concerns about this year’s budget and the proposed privatisation of Council services, lack of social housing, Mayoral advisers' allowances, air quality, Council tax increase, lack of youth club provision and welfare rights' advice. 

I will be contacting Executive members about the level of Council tax benefit that Newham residents on low incomes receive, exemptions and what appears to be an excessive level of Court summons and use of Bailiffs. Other Labour Councils act very differently.

Other Council related work

Early this year I was part of a Greek Solidarity Campaign delegation (self-funded) to Athens. 

The delegation included Labour Party & UNISON activists, David Lammy MP and Jon Lansman. The theme was local government and trade unions. We visited Solidarity centres, and make-shift refugee shelters in the port, met Greek Government ministers and various MPs at Parliament and ministry buildings, Greek Mayors and Councillors at local town halls, national and public sector trade unions. I have written a report on what was a fascinating but at times a very distressing visit (copy available).

Party work

I was involved in the successful campaign to elect, Anam Islam, as Councillor in Forest Gate North and the (unsuccessful) campaign to “Remain” in the European Union. While I fully accept the result for Brexit I am very angry at the frankly appalling local campaign in Newham and that we had the lowest vote in London to “Remain” for a Labour authority. We only had 52% for 'remain' compared to over 75% in Lambeth, Hackney and Haringey.

I have also campaigned in the successful London Mayoral/GLA campaign for Sadiq Khan and the Hackney Mayor by election.

Recent Suspensions/Expulsions of members

While I have been horrified at some of the completely vile and unacceptable abuse on social media (by all sides) during the recent leadership campaign, I am aware of individual West Ham CLP cases where members have been suspended or even expelled on evidence which I find, to say the least, unconvincing.

I also think this is unfair since I know that serious and substantiated allegations of violent, abusive, sexist and racist behaviour has been made against members in the recent past to the Party yet it has so far failed to act.

Re-election of Labour Leader Jeremy Corbyn.

I congratulate Jeremy on his victory. He has clearly earned the right to lead the Party into the next General Election. I hope that the Party will now pull together behind him and that we will do everything we can to defeat the Tories in 2020 (or sooner). I am concerned about the proposed boundary changes and that the historic name for a parliament seat “West Ham” is also at risk.

John Gray

West Ham Ward Councillor

Showing LOBO salesmen the door

Another council insider, David Green, adds more on the website Room 151 to the sorry tale of the LOBO debacle after watching the recent Parliamentary Select Committee investigation.

He recalls as a former local authority treasury management officer, how the LOBO salesmen who pitched these toxic loans were sent away by his director "at the earliest opportunity".

David writes "Having worked for a local authority, a money broker and now an independent treasury adviser, I have seen LOBOs from many angles.  

I know that when our brokers and advisers visited me as a junior council treasury officer, the initial low interest rate looked superficially attractive.  But I also remember asking what I would be charged for a plain fixed rate loan from a bank, and on finding that it was much more expensive, I gained some idea of the value inherent in those options".

The most damning comment is towards the end 

"And in retrospect, I really can’t imagine a local authority treasurer asking for a loan whose rate stays fixed if market rates fall, but whose rate can rise when market rates increase, in what was called a lose-lose situation at the Committee".

Check out my previous posts on the LOBO scandal and most importantly - what can Councils and Housing associations do about it here, here and here.

(about picture - LOBO is Spanish for "Wolf". Quite an apt name I think) 

"LOBOs and the confessions of an ex-auditor"

Check out this article in the local government finance online site "Room 151". Former auditor, Stephen Sheen, looks critically at the decision making process that resulted in Councils taking out LOBOs (Lender Option; Borrower Option) in the first place.

He thinks that the arguments that LOBOs were better than PWLB (the government Public Works Lending Board) are "somewhat disingenuous". The big numbers thrown by critics do not "illuminate the evils inherent in LOBOs"  To be fair he seems to be not a great fan of any long term fixed rate loans.

He "fesses" up that as an auditor at the time there was little thought about whether "LOBOs had unlawfully sneaked Bermudan swaptions" back into Local Government finance (after I assume the Hammersmith & Fulham debacle).

The suspicion is that LOBOs appeared attractive since loans could be rolled over and spread for unprecedented time periods.  Also the initial "teaser" interest rates (some 0%) provided short term financial relief.

His final thoughts were that this is still relevant since "it is still the episode from my twenty-year audit career that I remember with most concern about the enduring question of the acceptance of advice without due critical reflection". So I think he means if it happened once, it could happen again.

This is the only commentory I have read in mainstream council media that "suggests" LOBOs were a bad deal for local authorities. Unlike the Housing Association world where it is widely accepted that LOBOs were a disaster, in Local Government, we still have our heads buried in the sands.

If you are in a hole, the first thing to so is to stop digging and get yourself out of the hole. Councils holding large amounts of LOBOs should accept that they have been mis-sold unlawful loans and then combine together (with housing associations) to sue the Banks and the advisers.

Otherwise we face spending billions of pounds that we haven't got on profits for the Banks paid for by further slashing and burning public services.

Can we start this by having some more confessions please. 

If you don't have a clue what I am talking about (not an uncommon occurrence) check this article http://grayee.blogspot.co.uk/2015/07/how-banks-are-ripping-off-councils-and.html

Hat tip Mr Meech.

"Alternative Financing Proposals for the Newham Pension Fund"

(This sounds pretty teckie and boring but I have serious concerns about this proposal which you can find here and was agreed yesterday at Newham Cabinet. I circulated this email to all Cllrs with a copy of my submission to the overview and scrunity committee meeting on "Pensions for Members" Call in).

"Dear Colleagues

I hope to attend at least part of the Cabinet meeting tonight but due to work commitments I cannot be certain. Please see attached document on "Pensions for members" item that I submitted to the Overview & Scrutiny “Call in” yesterday evening.  

I also have concerns about the proposal in item 6 “Alternative Financing Proposals for the Newham Pension Fund”. These concerns are :-

1.       The Government announced in the budget that if the 101 different local authority pension funds do not pool their funds they will be forced to do so by the Government. It would be unwise and a waste of public money to set up an Alternative  Financing proposal if the Government is about to force funds to merge. It may provoke legal action by the Government as well.

2.       When funds are merged we can expect huge cost savings and improvement in return which will be far more that any projected savings from the alternative proposed vehicle (even if it works).

3.       I understand that the proposal will cost £500,000 to set up and it is a significant cost at a time of savage cuts.

4.       I do not understand why this proposal has not been before the Investment and Accounts Committee (and the Pension board) for consultation and initial approval? The committee may decide that the proposal is not suitable for the fund and again, public money will be wasted?

5.       Finally, I understand that such complex alternative vehicles are high risk and eye watering expensive.  After our dreadful experience with LOBO loans we should be extra careful not in invest in such complex products without the highest level of scrutiny.

         I therefore hope that the Mayor will withdraw this proposal and send it for consideration by Investment and Accounts Committee (and Pension Board)

Regards

John Gray (Councillor)

(All Newham Cllrs have been asked to suggest ways to save money and cut costs. I will be publishing posts such as this on possible savings that can be achieved without harm to residents. So far this amounts to £1.1 million. £500k for not going ahead with this alternative proposal and £600k for not giving some Cllrs pensions).

Update: Professional Pensions (and a leading financial figure) have taken up this issue. See here

Select Committee Hear Damning Evidence on LOBO Loan Scandal And Conflicts

I was at the Parliamentary select committee hearing yesterday with Newham Councillors, Cllr Fiaz and Cllr Whitworth. Bearing in mind the savage cuts in our budget, I was incensed to hear futher details how Councils were duped into buying LOBOs when paid advisers were also receiving commissions from the Banks. I will post my thoughts later.

Below is a press release from Debt Resistance, who I do not always agree with but let us all say well done for their work in exposing this national scandal. 

"Communities and Local Government Select Committee Hear Damning Evidence on Local Government LOBO Loan Scandal And Conflicts Of Interest With ICAP and CAPITA Treasury Advice.

The Communities and Local Government Select Committee inquiry into LOBO loans to local authorities heard evidence on Monday from Vedanta Hedging CEO Abishek Sachdev and former Barclays Capital trader Rob Carver on the back of Debt Resistance UK FOI research featured in C4 Dispatches – ‘How Councils Blow Your Millions’. Presenter and C4 journalist Antony Barnett also fronted the committee, broadcast live on Parliament TV.

Highlights of evidence submitted during the hearing included:

Antony Barnett (C4 Dispatches):

'Based on data obtained via FOI's by Debt Resistance UK, Dispatches, and from Government sources, we estimate 250 councils have LOBO loans, and there are around 1000 individual LOBO loan contracts'

'Brokerage fees [on LOBO loans] are significant and this is public money, we can estimate from Freedom of Information requests councils paid £25,000.00 in brokerage fees on £10million pound LOBOs. So over all, we are talking tens of millions of public money, being paid to ICAP, Tullet Prebon and other brokers - who were also being paid commissions from the other side. On an equivalent Government PWLB loans, I think they only paid £75'. 

Rob Carver (former derivatives trader - Barclays Capital):

[LOBO loans] are: 'the kind of risk that makes traders and hedge fund managers wake up at night screaming. It’s just horrible, horrible stuff, and I don’t think anyone who understands it would do it.'....  ‘I wouldn’t do these deals with a gun to my head.'

'On average, looking at interests rates now, you'd expect LOBO loans to be worse value than Public Works Loan Board (PWLB) loans. The reason you know that is because thats what the loan breakage costs tell you. The break costs tell you the expected value of that loan going into the future. The fact the breakage costs are so much higher tells you on average all the derivative models think LOBO loans will be a worse deal than PWLB loans.'

Abhishek Sachdev (CEO Vedanta Hedging):

'I would categorically say I don’t believe you could find a finance officer or treasury officer in a council who could assess the risks and rewards of these LOBO products. Even FTSE 250 businesses wouldn’t be able to analyse these on their own.’

'We looked at exit (breakage) fees for both PWLB loans and LOBO loans. On PWLB loans the exit fees were 38% of the loan value. On LOBO loans, the exit fees were greater than 90% of the loan value'.
 

In response to evidence submitted during the hearing, Newham Council Labour Councillor John Gray said:

'I was incensed to hear of the massive hidden LOBO loan kickbacks that banks paid 'independent' council advisors that were supposed to be representing the interests of residents and taxpayers'.

Despite damning evidence of profiteering, amounting to the systematic manipulation of local government finance by the financial sector, the Commons CLG Committee has not announced a full inquiry, nor scheduled further evidence sessions at this stage.

Instead, individual named parties will be privately invited to submit evidence to the Committee, with no further action expected on this matter until at least September, when a summary report will be prepared.

In response to the news the CLG Committee will not conduct a full inquiry, Joel Benjamin of Debt Resistance UK said:

 "Instead of a full public hearing, where evidence is scrutinised and broadcast live on Parliamentary TV, the CLG Committee have allowed a situation where CAPITA, ICAP, Tullet Prebon, RBS and Barclays are granted preferential treatment and will submit written evidence to the Committee in private, with no scope for either forensic questioning by MP's, nor public oversight.

I fail to see how this opaque arrangement is in the interests of UK taxpayers, who are billions of pounds out of pocket as a result of LOBO loan borrowing from banks and demand answers as to why this scandal has occurred, despite attempts to toughen regulation since the banking crisis. Parliament and The FSA both failed in their duty to fully investigate Treasury Advisors following the Iceland banking crisis in 2009. This matter cannot be swept under the carpet yet again. 

Billions of pounds of taxpayer money is ultimately at stake here, with serious questions of impropriety to be answered. Parliament must fully scrutinise public sector borrowing from City of London banks and address conflicts of interest with the unregulated financial advisors that recommend LOBOs whilst accepting undeclared kickback payments from banks and brokers.” 

Failure of the CLG Committee to initiate a full public inquiry highlights the limits of institutions including the Financial Conduct Authority and Local Government Association that failed to spot the LOBO loan scandal to act in the public interest. DRUK insists citizen debt audit pressure must be applied to local authorities to ensure this issue is taken seriously.

Many local authorities which do not fully comprehend the long term risk and cost implications of LOBO loans have rushed to defend LOBO deals. DRUK's Jamie Griffiths observes:

"LOBO loans present terrible value for taxpayers despite arguments to the contrary. By extending the life of the loan and giving up the ability to repay when interest rates are low, councils end up paying significantly greater sums in interest than they would by borrowing from central government. While so-called 'independent' auditors look the other way, taxes collected by councils end up paying not for essential services but to feather the nests of bankers, brokers and advisers."

Already City Watchdog The FCA are seeking to distance themselves from responsibility for this fiasco, despite being directed to investigate Treasury Management Advisors by DCLG in 2009, yet refusing to do so.

The FCA claim to lack the powers required to investigate conflicts of interest within the very firms they are supposed to regulate – with an FCA spokesperson confirming that local authorities are "sophisticated" borrowers:

 

Ludovica Rogers from Debt Resistance UK continues:
"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.
 
We call on people and local grass-roots groups to join the campaign and start organising their own local action group. We need a localised decentralised campaign spread across the country run by citizens for citizens.
 
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.”

Debt Resistance UK intend to submit FOI evidence to the CLG Committee on LOBO loans, but as yet have not been called by the CLG Committee to provide evidence.

For press inquiries email: press@debtresistance.uk  Phone: 07543219635

Links to further information:
 UK Local Authority Debt Audit website: http://lada.debtresistance.uk/
Debt Resistance UK website: http://debtresistance.uk/
Interactive map of local authority debt: bit.ly/LADAmap
What is a LOBO loan? http://bit.ly/LOBOLoan
LOBO Loans are potentially illegal http://bit.ly/DebtTrap
The conflicts of interest http://bit.ly/LADA3

How banks are ripping off Councils and what to do about it

This post was published on LabourList today. Tomorrow (20 July 2015) at 4pm the Select Community on Communities Local Government will hear evidence from the Channel 4 Despatches programme and their expert witnesses.

"This article is written by Cllr John Gray and Cllr Rokhsana Fiaz

As Newham Councillors we were horrified to watch the Channel 4 Dispatches programme ‘How Councils Blow Your Millions’, which was broadcast last week.  It is astonishing that nearly a decade after the Banks nearly destroyed our economy with their dishonesty and greed, they have been caught out yet again ripping off taxpayers; and in our case hard-working Newham residents.

 This time they are stealing millions of pounds every year in high interest charges for mis-sold and even illegal 70 year loans called LOBOs.  This is at a time when Newham, one of the poorest councils in the country, is facing savage cuts to its budget.  LOBOs are toxic loans, which rely on a City form of financial gambling called derivatives. The dice in LOBOS is rolled almost completely in favour of the Banks. Councils, who are deceived with the complexities of such financial products, signed up to these loans at fixed interest rates which they have to keep on paying even though interest rates have dropped like a stone to historical lows. If interest rates go up then the Banks can raise the rate on the LOBO or they can demand repayment.

It has been estimated that Newham pays an extra £13 million in interest payments per year on our portfolio of £563 million worth of LOBOs. This is over a £1 million per month or £250,000 per week. Newham are paying nearly 8 per cent on some of its LOBOs, while nowadays local authorities can get loans from the Government for 1-1.5 per cent. It would cost Newham hundreds of millions of pounds in so called ‘break clauses’ if we tried to repay the money early.  Nationally, Channel 4’s Dispatches estimate that councils up and down the country are paying £163 million extra per year on £15 billion of LOBOs.

So what can we do about this? It was good to hear Clive Betts, chairman of the parliamentary committee, which scrutinises local government, call for an inquiry by the regulator into the behaviour of the banks, but this is perhaps shutting the door after the horse has bolted.

Instead there must be a collective approach by all councils that have been ripped off.  As Newham councillors, we have been investigating LOBOs for several months and have spoken to a senior City law firm that specialise in suing Banks and other financial institutions. They have told us that we have a case for mis-selling and for having the LOBOs set aside because they are in fact derivatives.
Councils are forbidden in law from using derivatives and therefore the loans are what is called “ultra vires” and should be discontinued. Hammersmith and Fulham Council were able to this in the 1980s when they got involved in similar derivatives mis-selling scandal.

This legal fight will cost money since the Banks always contest such things in the first instance and they have long pockets funded of course with our money.  That is why we should share the burden amongst Councils affected. Labour Councils up and down the country who are especially affected by the LOBOs scandal, should be writing to the Local Government Association and urging them to take the lead on this.

The only alternative is to do nothing and keep on paying millions and millions of pounds that we haven’t got. That is not an option when hard working residents across the country face the prospect of local services being diminished because of local council budget cuts driven by central government’s austerity drive.

John Gray and Rokhsana Fiaz are councillors in the London Borough of Newham"