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Luton City Councils disagree over £500m loan to airport company

A war of words has erupted between councilors from opposing political parties over whether Luton Borough Council’s loans to its airport company are secured or unsecured.

The most recent exchange took place during the debate on the local authority’s annual financial management report at a plenary session.

Financial portfolio owner and Labor Limbury councilor Rob Roche warned: “I don’t want people to think we’re doing something stupid, like an unsecured loan against an asset.”

Luton City Council

Barnfield Liberal Democrat Councilor David Franks disagreed, describing the report as “a reminder of how much more difficult it is to manage the council’s cash flow given the amount of debt the council carries”.

The leader of the opposition group said: “And in particular there are more than £500million in unsecured loans made to the airport company.

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

“You can’t use assets that the community already owns as collateral for a loan like this. They are practically unsecured.”

Councilor Roche explained: “We have a separate entity as a company, London Luton Airport Limited, trading as Luton Rising. The Council is separate from it.

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

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

“There’s no way you could call that a safe loan.”

But Councilor Roche replied: “We must agree to disagree. It’s a secured loan. There is a bond in Companies House that is collateralised against the airport and the loan is collateralised.”

The report found “an increase in external borrowing of £89m over 2021/22 to finance projects approved by the Council and that the local authority did not breach any of its regulatory limits”.

It covers several areas including:

Capital activity for the financial year 2021/22; Council’s overall borrowing needs or capital funding needs; Total cash position, showing how the Council has borrowed in relation to its indebtedness and the impact on investment balances; borrowing strategy and activity; and investment strategy and activity.

“The Council is currently pursuing a policy of maximizing internal borrowing and thereby minimizing the need for credit,” says the report.

“LBC has already fixed most of its long-term borrowing needs at fixed rates, a strategy that should mitigate the risk of further rate hikes.

“The Council must ensure that it does not borrow to cover revenue expenditure. The approved level is the affordable credit limit prescribed by Section 3 of the Local Government Act 2003.

“The local authority has no authority to borrow beyond this level. During 2021/22 the Council kept gross borrowing within its approved limit.”

The Council members approved the annual report on financial management and regulatory indicators for the year ended March 31, 2022.

SOURCE: Luton Borough Council meeting (15 November).

Richard Dement

The author Richard Dement