Former council acted properly over £27M in loans

Former council acted properly over £27M in loans

Published by Maria Greenwood at 10:04am 14th January 2020. (Updated at 10:08am 14th January 2020)

Weymouth and Portland borough council acted properly over £27million of loans it took out almost 20 years ago.

The borrowing now sits with the Dorset Council, although £10m has since been changed to a different type of loan and £6m of it paid off.

The loans taken out by the former council, which was disbanded in 2019, were arranged in 2002 and 2003 and then rescheduled and extended in 2006, some not due to end until 2076.

A report was requested from accountants KPMG after a local elector objected to the 2016-17 accounts of the former borough council, in relation to the use of the Lender Option Borrower Option (LOBO) loans.

The objector questioned whether they been good value for money and lawful.

pound coins money

'How do LOBO loans work?'

LOBO loans have been criticised by some financial experts because they usually give banks an option every six months to increase the interest rate.

Once that option has been exercised the lender then has the option to accept the increase, or repay the loan in full within a specified period, which can be as little as two working days from receiving notification to increase the interest rate.

WPBC offices North Quay

'Reports findings'

A KPMG report published this week into the Weymouth and Portland loans concluded that “the LOBO loans were entered into appropriately and reasonably,” but is critical that some paperwork has not be found.

It says that the former borough council took into account all the relevant factors and guidance at the time and that there is “nothing to indicate any lack of prudence in the council’s actions in entering into the LOBO loans at the time.”

At least one senior councillor claimed that the loans saved local council taxpayers money.

KPMG say that some documentation relating to what advice was sought and obtained ‘is not specified and is no longer available’ which it describes as ‘regrettable’ but adds:

“The auditor’s view was that, on balance, he had sufficient information available from the material documents; discussions with current council officers; and formal council / committee reporting to enable him to form a judgement on the objection…

calculator accounts

"There is nothing to indicate that the approach taken by council officers and the formal reporting to members was inconsistent with what the auditor would expect to see for a local authority when making its treasury management decisions.

"The auditor’s understanding is that in these circumstances, the council was and continued to be entitled to proceed on the basis that the loans were entered into lawfully despite the limited contemporaneous documentation evidencing the process and decision making.”

The report says the loans were taken out by WPBC to restructuring its loan portfolio with the aim of producing revenue savings for the council.

By Trevor Bevins, Local Democracy Reporter