COUNCIL chiefs in Worcestershire have signed off £70 million in controversial loans linked to a national TV investigation into a potential banking scandal, it has emerged.

Your Worcester News can reveal how Worcestershire County Council has taken out £70 million in LOBO loans, a high interest bank lending tactic which has sparked calls for a parliamentary investigation.

Tonight’s Channel 4 Dispatches programme will reveal how around 240 councils in the UK have gone to banks to secure lending deals over 40, 50 or even 60 years under the LOBO deals.

The risky and complex loans were mainly taken out during the last decade when the economy was booming and councils believed interest rates would stay high - before the base rate hit rock bottom.

According to the Channel 4 investigation, some £15 billion has been taken out by councils using the LOBO system, with some being hit with repayment rates as high as seven per cent or more and massive penalties imposed on authorities which try and exit early.

The county council took out six deals between 2003 and 2006, the last of which will be paid off in 2066, all of them LOBO loans of either £10 million or £20 million with German banks.

A Freedom of Information request reveals how one cost taxpayers £48,000 just for a third party to broker the deal - and all of them are subject to rate changes either three or ten years in.

The council has refused to reveal what the interest repayments are on each loan, saying they are commercially sensitive.

But the revelation about the LOBO system, which until now was relatively unknown, has led to Clive Betts, the chairman of the parliamentary committee which scrutinises local government, to demand an inquiry into the tactic, calling it "outrageous".

Mr Betts has also called for the Financial Conduct Authority to investigate the City firms that give specialist financial advice to town halls on their borrowing.

Dispatches uncovered evidence that some council advisers were not only paid by the local authority, but earned commission from City brokers if councils took them out.

Tonight’s programme will reveal how banks have made more than £1 billion in upfront profits just by signing off the deals.

Calculations suggest that if councils could refinance at today’s rates, they could save taxpayers £145 million this year alone.

The LOBO loans normally last for between 40 and 70 years, have huge exit fees if a council tries to move to a better deal, and the banks can raise the rates at regular intervals.

The county council's biggest loan of £20 million was taken out in 2004 with German bank FMS Wertmanagement and will not be paid back until February 2054.

It cost £48,000 to broker the deal, with the FOI revealing the others cost £24,000, £18,000 or £12,000 to set up, with the interest rates withheld from the response.

Two of the loans, each for £10 million, have already been paid back fully but the other four are still outstanding, with the end dates either 2054 or 2066.

They were all brokered by the same firm, Tullett Prebon, with the loans either taken from FMS or Eurohypo, a fellow German bank headquartered in Frankfurt.

Councillor Peter McDonald, Labour group leader at County Hall, said: “For years we’ve been cutting services left, right and centre and then you look at things like this. I am very worried.”

A spokesman for the county council said the LOBO loans were only one fifth of all its borrowing during that period, and that the average repayment agreement from its entire portfolio costs the authority 4.3 per cent.

He said: “Our portfolio of long term external borrowing is achieving an average rate of 4.3 percent which benchmarks favourably with other local authorities.

“Less than 20 percent relates to LOBO that were taken out between 2004 and 2006 when cost of these loans were cheaper than alternative sources of financing and therefore represented a cheaper option for the council.

“If the LOBO lenders raise their rates, then the council has the option to repay the loans at no additional cost and is therefore protected against such fluctuations.

“The council uses long term borrowing to support significant capital investment in projects such as school and road improvements and confirms each year as part of the annual budget process that this continues to represent good value for money for the taxpayers in Worcestershire.

“Our continued investment over the next five years, has been achieved through successfully bidding into central government growth deal funding, for which we secured £54 million in 2014.”

Adrian Hardman, the leader and cabinet member for finance, said: "I am happy that our portfolio provides value for money and the council's exposure to the risk of fluctuating interest rates are protected. 

"At the time that the investments were required to improve roads, education and other services, these loans represented the best value for  money. 

"In the intervening years we have been successful in securing Government funding for major infrastructure projects and the council has worked to reduce the need for external borrowing.  

"This has enabled us to minimise the need for taking out new loans."