Luton councillors in disagreement over £500m loans to airport company

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Councillors agree to disagree over whether huge loans are secured or unsecured

A war of words between councillors from opposing political parties has resumed over whether loans by Luton Borough Council to its airport company are secured or unsecured.

The latest exchange came during debate on the local authority’s treasury management annual report at a full council meeting.

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Finance portfolio holder and Labour Limbury councillor Rob Roche warned: “I don’t want people to think we’re going to do something stupid as an unsecured loan against an asset.”

Luton Borough CouncilLuton Borough Council
Luton Borough Council

Liberal Democrat Barnfield councillor David Franks disagreed, describing the report as “a reminder how much more difficult dealing with the council’s cash flow is because of the level of debt the council is carrying”.

The opposition group leader said: “And, in particular, there’s more than £500m of unsecured loans, which have been given to the airport company.

“I know I’m about to be told those loans are in fact secured on the assets of the company. But that’s nonsense.

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“You can’t take as security for a loan like this assets which the council already owns. They’re effectively unsecured.”

Councillor Roche explained: “We’ve a separate entity as a company, London Luton Airport Limited, trading as Luton Rising. The council is separate from that.

“The asset is secured by debenture in Companies House and we’ve first charge on that asset. So it’s secured against the asset. I don’t want people to think we’re stupid enough to do something like that.”

Councillor Franks added: “In the case of the loans to LLAL, the lender is the council and the council has registered an interest in assets which the council already owns through its ownership of the company.

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“There are no ways in which that can be described as a secure loan.”

But councillor Roche replied: “We’ll have to agree to disagree. It’s a secured loan. There’s a debenture in Companies House secured against the airport and the loan is secured.”

The report noted “an increase in the amount of external borrowing, £89m during 2021/22, to finance council approved projects, and that the local authority didn’t breach any of its prudential limits”.

It covers several areas including:

capital activity for the financial year 2021/22;the council’s overall borrowing need or capital financing requirement;the overall treasury position identifying how the council has borrowed relating to its indebtedness, and the impact on investment balances;borrowing strategy and activity;and investment strategy and activity.

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“The council has a current policy of maximising internal borrowing, and therefore minimising the need to borrow,” said the report.

“LBC has locked most of the long-term borrowing requirement on fixed rate terms already, a strategy which should mitigate exposure to further interest rate rises.

“The council must ensure it isn’t borrowing to support revenue expenditure. The authorised level is the affordable borrowing limit required by section three of the Local Government Act 2003.

“The local authority doesn’t have the power to borrow above this level. During 2021/22 the council has maintained gross borrowing within its authorised limit.”

Councillors approved the annual report on treasury management and prudential indicators for the year ending March 31st 2022.

SOURCE: Luton Borough Council (Nov 15th) meeting.