Independent auditors have been asked to establish if a series of high-interest bank loans taken out by Wirral Council between 2001 and 2008 are “unlawful.”

The so-called LOBO loans (Lender Option Borrower Option) were sold at the time on the assumption interest rates were going up.

But rates are now at an historic low and with expensive exit fees making it difficult to get out of the loans, Wirral is one of hundreds of councils across the country locked into LOBOs.

Over a period of seven years up to 2008 the local authority took out 19 of the loans - mostly with German banks - worth a total of £137m.

But it appears entering the complicated world of structured finance was a gamble that didn't pay off.

The borough is saddled with an annual interest bill of £8m to service the debt.

Now the town hall is facing mounting questions about the wisdom of entering into these complex arrangements.

The borough has been presented with an objection against the LOBO debt by a resident under the 2014 Local Audit and Accountability Act claiming the loans are "irrational" expenditure and are therefore "unlawful."

A council spokesman said: "No legal challenge has been received. Like a number of other local authorities we have received an objection to our annual accounts.

"This objection will be reviewed by our external auditors [Grant Thornton] in partnership with the National Audit Office.

"They will then decide what action to take, if any.’

Freedom of Information requests by campaign group Debt Resistance UK have discovered 805 LOBO loans to 250 councils.

A spokesman for the group said: "UK local government finance is completely unregulated so it’s great to see local residents around the country taking action, demanding accountability over how billions of pounds of public money is spent.

"For the past six years councils have been passing down savage cuts to the poorest in society, using bailiffs to violently recover debts from the working poor, claiming they have no other option."

Debt Resistance says a significant proportion of the loans should be cancelled so councils can refinance at lower rates of interest.

Conservative councillor Ian Lewis said today:  “Wirral’s debts to these banks are simply not in the best interest of the borough so I’m not surprised residents have raised concerns with our auditors.

“In the ten years since Wirral borrowed this cash interest rates have tumbled to an all-time low and yet for the taxpayers there has been no benefit whatever from low rates.

"Instead we have a consortium of banks rubbing their hands in glee while Wirral Council is locked into high rates for up to 40 years in the future."


Speaking to the Globe last July when LOBOs first came to the public's attention after a Channel 4 Dispatches documentary, a Wirral Council financial expert 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% to 10%.

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

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