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Local authorities have been co-opted by the interests of banks, and no longer serve taxpaying citizens, citizens who are experiencing deepening cuts to public services through the imposition of intellectually, economically, and morally bankrupt austerity measures.
Measures which are ostensibly being imposed to heal a banking crisis that ordinary citizens did not cause.
On Monday July 6, 2015 British television Channel 4 show “Dispatches” presented twelve months of research by Debt Resistance UK in a special show “ How councils Blow Your Millions”. The activist group obtained responses to more than 300 freedom of information requests, which they made to 250 UK local authorities.The responses revealed a cabal of private financial firms, banks (RBS, Barclays), brokers (ICAP, RP Martin and Tullet Prebon) and advisors (ICAP and CAPITA) acting in unison to plunder the public purse, costing taxpayers billions.
They exposed the full extent to which local authorities throughout the UK are lining the pockets of banks, the same banks who caused the enduring 2008 financial crisis, and who now continue to profit from the crisis while others suffer.Under the cloak of austerity, private bank debt was socialized by central government who granted “too big to fail” banks large bailouts. The burden of carrying these odious debts was then passed onto local authorities who transferred them to households least able to bear it.
Today, local councils are being encouraged by central government to borrow from the same private banks they bailed out, and at usurious rates of interest.
How are local authorities blowing your millions? If you have ever taken out a loan, you will know that you pay interest on it. Local councils, Housing Associations and Universities are having to take out loans, but due to predatory banking practices, they are incurring unnecessary interest costs on more than £15 billion of loans. These debts are being imposed on UK taxpayers via an obscure loan known as the Lender Option, Borrower Option (LOBO).
At the London Borough of Newham, borrowing via LOBO loans is costing local taxpayers an extra £13 million in annual interest payments to banks. At the same time the Council is passing emergency cuts to public services, and violently evicting single, vulnerable mothers and other social housing tenants, producing minimal balance sheet cost savings and maximum social decay and upheaval.
At Kent County Council, their actual loan repayment cost is more than the Council’s annual social welfare budget. LOBO loans to local authorities, Housing Associations and Universities have gone unregulated and unaudited, and – until recently – unreported by British media.
Debt Resistance UK are calling on UK citizens to take up citizen debt audit campaigns with their local council and are leading a coordinated local Authority debt audit campaign, inspired by citizen debt audits in Spain, debt audits in the global South (notably in Ecuador in 2008), and the public debt “truth commission” in Greece.
Vica Rogers, of Debt Resistance UK, who recently returned from a visit to Athens, explains, “We are initiating local authority debt audits to demonstrate how UK local Government finance has been co-opted to work in the interests of the private sector, and not in the interests of the people. To be clear, this is not an attack on local Government, but an attempt to reclaim our democratic institutions and the common resources they manage from the predatory clutches of the financial institutions.”
Debt Resistance UK found that many councils could not price, and did not fully understand the LOBO loans they were signing up to. Financial analyst Abishek Sachdev points to the billions of pounds of upfront profit celebrated by banks on the LOBO loan deals they signed with befuddled councils, loans which are a “lose-lose bet” for taxpayers.
Since 2010, Chancellor George Osborne has actively encouraged local authorities to engage in private bank borrowing, prompting councils to take on high-risk LOBO loans from private banks instead. Vica Rogers explained, “LOBO loans are a symptom of a financial system that no longer serves the interests of society. We must understand how the financial system functions and demand that public finance operates in the public interest.”
The relationship between the financial institutions involved in promoting these arrangements is nothing short of incestuous. Financial advisers, such as Butlers, advised local councils to enter into loan agreements with their parent company, ICAP. They earned commission or “kickbacks” every time these arrangements were made. CAPITA were involved in similar arrangements with broker Tullet Prebon, which fundamentally compromise the independence of advice given to local Authority clients, who rely on financial advisers to provide technical, and impartial advice.
Of the UK lenders, whilst Barclays are by far the largest lender, RBS has been the worst offender. It has pushed a toxic LOBO loan known as the “inverse floater” LOBO. Under this, some local councils are locked into paying interest rates as high as 8 percent. To punish local authorities after it was bailed out with public funds reveals the sociopathic drive RBS has to profit. The current financial system clearly rewards the orchestrators of the financial crisis.
The LOBO loan scandal could have been stopped years ago, had the financial regulator the Financial Services Authority properly investigated CAPITA, ICAP, and others in 2009 when it was presented with evidence of conflicts of interest that lie at the centre of the LOBO loan scandal. Instead, the regulator waived a free pass to the banks and refused to act.
From Athens to London, those in power attempt to blame citizens for burdening debt, while failing to point the finger on those who profit from criminal interest rates.
Debt is a globally systemic problem associated with predatory lending, financialization and the despotic power of “too big to fail” banks. While The Economist is pointing to a growing local government debt “bomb”, in China, similar problems in the UK require equal and urgent attention.
Clive Betts MP has called for a joint inquiry into LOBO loans. Debt Resistance UK welcomes this inquiry but has little faith that this process will deliver the necessary systemic reforms.Instead, they are calling for British citizens to initiate local authority debt audits in their local areas to ensure grassroots pressure for transparency and accountability, and are developing resources to support this work. To find out if your local council is blowing your millions in unnecessary LOBO loans, follow @debtresistuk on Twitter, and e-mail info@debtresitance.uk to start a local debt audit in your area.
Local authority debt audits send a timely and clear message to decision-makers that local government finance must operate in the public interest and be based on principles of transparency and public participation, and not vested City of London banks who are pimping obscure financial products at our collective expense.
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