A recently released report commissioned by Lancashire County Council from PriceWaterhouse Coopers has shown that the council will have fully depleted its monetary reserves by 2019. The council, which currently owns a number of Lender Option Borrower Option, or LOBO, loans, faces the strong possibility of not being able to complete its statutory duties and therefore risks government intervention under section 15 of the 1999 Local Government Act.
Responding to these reports, the council states that the government needs to rethink its approach to council funding in future, as they most likely acted on the financial advice of the Lancashire County Council Chief Investment Officer and HM Treasury. The LOBO loans, which are held by RBS, have gone some way to create a situation whereby even if the council were able to reduce its spending to the median of similar lowest quartile authorities, it would still face a cumulative deficit of £227m by 2021.
“This does not take account of any risks associated with the council’s planned savings programme or if these additional savings can be made without impacting on current service quality or safety.”
LOBO loans are long-term loans which contain complex structured derivatives. Vedanta Hedging has long rallied against these LOBO loans and in the past has even given live oral evidence to a Select Committee of MPs in Westminster regarding these mis-sold loans.
To read more about the developments with Lancashire County Council, please click here.
For further reading on various Freedom-of-Information requests pertaining to this situation, feel free to click here and here.