Scottish councils could save hundreds of millions by re-negotiating banks which have made enormous profits through high interest loans, campaigners say
- Newham council the latest to restructure its Lobo loans, with estimated savings of £143 million
- Dozens of English local authorities have now re-negotiated or cancelled Lobo loans
- Scottish local authorities have not seen the same moves to shed the controversial high interest loans
- Three of Scotland’s largest local authorities combined could save £1 billion in interest payments from re-negotiating the loans
ANTI-AUSTERITY campaigners have called on Scottish local authorities to follow the example of their English counterparts, which are now restructuring and even cancelling high interest commercial bank loans and re-investing the savings into local services.
The calls come after Newham council became the latest English local authority to re-negotiate £150 million in so called Lender Option Borrower Option (Lobo) loans with RBS-owned NatWest, a move council chiefs believe will free-up £143 million for public services that would otherwise have been spent on interest payments.
Joel Benjamin of Research for Action told CommonSpace that the spread of negotiations between local authorities and banks over Lobo loans had seen restructuring and cancellation of loans representing a significant movement in the state of local authority finances, but only in England, despite Scottish local authorities having the same loans.
He said: “Between 30-40 local authorities have Lobo loans with RBS in England which are being renegotiated or cancelled. We’ve seen this in Croydon, in Kent in Newham, in Cornwall.”
Read more: City of Edinburgh Council waived international accounting standards to get budgets signed-off
In some cases this meant councils paying the principle of loans plus a breakage fee, something that required state funding through the UK Government’s Public Works Loan Board (PWLB), thus costing the tax payer in the short-run to abandon more costly debt-servicing in the long-term.
“Basically what those local authorities are doing is paying a breakage fee to get out,” he said.
“They announced that they were essentially going to cancel or exit the entire Lobo portfolio. Rather than just removing the options and keeping them on their books, they were allowing councillors to essentially cancel them and to re-finance a cheaper interest rate via the Public Works Loan Board.”
“By our research, banks have been paid something like £600 million in exit fees so far.”
Read more: 3 Scottish councils could save over £1 billion by refinancing ‘Lobo’ loans, research finds
Benjamin said these examples should provide a basis for action by Scottish authorities which are now behind the curve in ditching the loans, which allow banks to raise interest rates at certain points as the loan matures, and have long been accused by campaigners of contributing to the decline of public services and the crisis facing local government in the era of austerity.
Benjamin said: “What we’ve seen across the board in Scotland is a failure across local authorities, regulatory authorities, accounting bodies – all these organisations are supposed to uphold professional standards in the public interest and none of them have been willing to lift a finger.
“I would like them to explain, how in their view paying two or three times the current interest rate on loans that were mis-sold by a criminal bank in RBS can be understood as serving the public interest?
“If there is a solution that has been taken up by dozens of local authorities in England, why are you not taking similar action?”
Newham Council in the East of London has seen harsh cuts in council spending in recent years, with reductions of £500 million in services between 2010 and 2017.
Read more: ‘Scam’ – RBS criticised for plan to spend ‘public money’ to speed up re-privatisation
Responding to the news of the deal struck by the local authority with NatWest, Vica Rogers from Research for Action said: “Newham, like most councils across the country, are at breaking point due to funding cuts. Councils should not also be suffering a drain on their finances from toxic LOBO loans.
“We welcome Mayor Rokhsana Fiaz’s commitment to put Newham residents first by contesting the banks that caused the austerity drive in the first place. Annual savings of £3.5 million will make a huge difference to people in Newham who are at the sharp end of the housing crisis, knife crime epidemic and other crises brought about by funding cuts.”
Benjamin says debt justice campaigners “don’t know why RBS are taking such an aggressive approach to clearing these loans”, but the suspicion is that both government pressure to “be seen to do something” and changes to conform to new regulations is playing a part.
“There have been regulatory changes that mean the banks have to hold more capital against variable rate loans, and as we know RBS isn’t in the best of health.” he said.
Read more: RBS accused of committing a “fraud on the people” over LOBO loans at AGM
“For a combination of government, PR and regulatory reasons they have been belatedly forced to take action.”
In Scotland, Benjamin suggested there may be structural reasons for why the current structure of Lobo loans remained relatively without challenge.
“I’m not aware of Audit Scotland making any significant focus of this [lobo loans],” he said.
“Audit Scotland’s attitude has been to bat this away and ignore it.
“RBS, being a Scottish based bank, it’s probably more difficult for the councils and other actors to start talking about pushing debt cancellation involving RBS.”
In March, CommonSpace revealed that Edinburgh City Council waived international accounting standards to get their budgets, which have considerable Lobo loan repayments on their balance sheet, signed-off.
Research for Action estimates that three of Scotland’s largest local authorities – Fife, Glasgow and Edinburgh – could benefit to the tune of £1bn by restructuring their Lobo loans.
Picture: David Mark