WIRRAL is set to be among councils in the Government's spotlight as an inquiry is called for into how local authorities were sold £15bn of high interest loans.

The borough is in debt to private banks to the tune of £137m in a complex financial arrangement called "LOBO" loans - the acronym stands for Lender Option Borrower Option.

The Wirral loans are split over 19 separate contracts with eight banks, the largest is for £18.5m, the smallest £2m.

The majority are with banks based in Germany and most of the loans have a minimum 30-year lifespan.

They were entered into by the council from 2001, the last being agreed in 2008.

Wirral Council says the loans represent value for money.

It is well known the town hall's finances are already under intense pressure - £100m of cuts to services will have to be made by 2020 under an austerity budget.

Yet with the interest on Wirral's LOBOs currently set at an average of 6% it means servicing the debt costs local taxpayers around £8m per year.

Now Clive Betts MP, chairman of the communities and local government select committee, has called for a national inquiry into how more than 200 councils were sold LOBO loans.

Following a Channel 4 Dispatches programme on Monday, it was stated that around 240 local authorities have taken up to £15bn in LOBOS from private banks, which in some cases charge interest rates of more than 7%.

It was also noted that the expensive exit fees make it difficult for councils to get out of the loans, which run for between 40 and 70 years.

Mr Betts said: “I think this is very much an issue which my committee would want to look into. There is clearly the need for a tougher regulatory framework.”

He also called on the Financial Conduct Authority to investigate “outrageous” claims that City firms paid to provide councils with independent financial advice were receiving commission from brokers if local authorities took out a LOBO loan.

According to internet pressure group "Debt Resistance UK" - who sent Freedom of Information requests to more than 200 councils - Wirral's borrowing places it in 13th position in a "league table of debt" - one spot behind Liverpool City Council.

The group is lobbying for change in the way councils finance their capital programmes through debt.

They say: "LOBO loans are a symptom of a financial system that no longer serves the interests of society.

"We need to reclaim our democratic institutions from the powerful clutches of the City of London, and to do this we must understand how the financial system functions, and demand changes to ensure public finance operates in the public interest.

"The existing local government financial framework is not fit-for-purpose and results in odious and unnecessary bank debts being imposed on citizens in order to finance council regeneration and housing schemes."

They are "calling on citizens to implement local authority debt audits in their local areas to ensure grassroots pressure for transparency and accountability."

A council spokesman said: "Wirral entered into the LOBO arrangements between 2001 and 2008, prior to the recession.

"The interest on these loans costs 6% per year which is £8m per year.

"This is less than other loans available to the authority at the time, for instance through the Public Works Loan Board, which offered 9-10%.

“The LOBOs therefore represented the best option for the council."

The representative continued: “Wirral is the ninth largest metropolitan authority and each year invests major sums to improve roads, schools and council buildings as well as supporting regeneration and housing.

"This is funded through Government grants, receipts from the sale of surplus assets and borrowing. The loans are not used for meeting the day-to-day costs of the council.

“If the banks were to increase the rates then the council has the opportunity to repay the loan – if cheaper borrowing can be found.  

“Clive Betts has referred to advisors making vast sums out of the negotiation of these loans.

"Wirral did not pay for any external advice of this kind.

"We would welcome any actions Mr Betts or the Government can take to reduce the cost of borrowing for local authorities.”