In organising to defend social housing in Newham, East London, the Focus E15 campaign has consistently come up against indifference and outright hostility from the Labour council and its mayor Robin Wales. Newham is one of London’s most deprived boroughs, rated by London’s Poverty Profile as among the worst four for pay inequality, unemployment, overcrowding and a range of other indicators.
The council has long been a byword for social cleansing and contempt for the working class. Now financial mismanagement can be added to the list. New research raises serious concerns about Newham’s financial conduct, specifically its portfolio of so-called ‘LOBO’ loans.
Under LOBO loans, or ‘Lender Option Borrower Option’ loans, the rate of interest falls if overall interest rates rise. But, if overall interest rates fall, as they have done so dramatically, then the interest rate on the loan rises, leaving borrowers seriously out of pocket. On top of that, LOBO loans are often characterised by high get-out fees in order to break contract. Derivatives expert Abhishek Sachdev explains: ‘They are incredibly complex, but the upshot is it’s like you’ve been given an umbrella to carry around by the bank and then when it starts to rain the bank takes the umbrella away from you.’ Yet 63% of all councils were persuaded to take out these loans – now thought to total £70bn of debt – seduced by high interest rates at the time. Newham has the highest debt liability of any of them.
Between 2002 and 2011 Newham council took out 27 LOBO loans at a face value of £563m, making it the biggest LOBO borrower in Britain. In part, these loans were intended for capital investment, including part-funding of the 2012 Olympic stadium (Financial Times, 11 March 2016). Newham has admitted the ‘fair value’ of those debts (to banks including Barclays, RBS and Bank of America) is now around £959m. Auditors have asked to investigate the legality of Newham’s deals (The Independent, 10 March 2016). Joel Benjamin, a debt campaigner and supporter of Focus E15, writes that the council has refused numerous requests, under Freedom of Information legislation, to reveal the detail of its contracts with the banks. He says that, had the council used normal government mechanisms for borrowing money over this period, they would not now be £30m out of pocket: ‘There was no need to enter into speculative derivative contracts… for what ultimately constitutes a gamble with taxpayers’ money.’
Meanwhile Newham council is imposing £50m of cuts to services this year. And in the so-called ‘Olympic borough’, as luxury flats for private sale and rental, and glossy new retail units continue to rise, homelessness is increasing. Last year, more people were evicted from their rented accommodation in Newham than from any other borough in the country.
Ben Geraghty
Fight Racism! Fight Imperialism! 250 April/May 2016
