Chartered Institute of Public Finance and Accountancy

Minutes

Committee PRUDENTIAL CODE STEERING GROUP
Date 10 May
Venue Council Chamber, CIPFA, 3 Robert Street, London, WC2N 6RL

1.     INTRODUCTION

1.1   The Chairman welcomed members of the Prudential Code Steering Group to the first meeting of their second cycle, following publication of the exposure draft of the Prudential Code in December. This was his first meeting as Chairman of the Steering Group and he stressed the importance of the work being undertaken.

2.     MEMBERSHIP

2.1   The Chairman commented that the Steering Group reports to the CIPFA Treasury Management Panel. The new Chairman of the TMP is Peter Martin. In consequence, Peter Martin will sit on the PCSG as Chair of the TMP and he, Tony Knights, will sit on the TMP as Chair of the PCSG.

2.2   Will Godfrey was welcomed to his first meeting of the PCSG, representing the Welsh Local Government Association.

3.     APOLOGIES

3.1   Apologies were received from Paul Bannister, Keith Beaumont, Peter Derrick, Ronnie Hinds, Lyn James, Peter Martin and Mike Weaver.

4.     MINUTES AND MATTERS ARISING

4.1   The minutes of the meeting held on 31 October 2001 were approved as a correct record.

4.2   There were no matters arising not on the agenda.

5.     UPDATE ON THE WIDER PRUDENTIAL FRAMEWORK

        (a) DTLR - Pam Williams

5.1   Pam Williams reported that further work is being undertaken by the government in turning the proposals in the white paper into the necessary primary legislation. It will not be known whether hopes of a Bill in the next session will be realised until the Queen's Speech. However, the department is working hard in order to be able to take advantage of a slot in the next session, if one is achieved. It is hoped that primary legislation will be enacted in time for an implementation date in England and Wales of 1 April 2004.

5.2   The Capital Programmes Working Party and its Technical Sub Group are progressing more detailed aspects towards future secondary legislation for England.

5.3   NB, Subsequent to the meeting, the [now] Office of the Deputy Prime Minister has published a draft Local Government Bill.

        (b) National Assembly for Wales - Lisa James

5.4   Lisa James reported that the Welsh Assembly Government published 'Freedom and Responsibility in Local Government - A Policy Statement' on 1 March. This affirms Welsh Assembly Government commitment to the prudential system. They will be working with DTLR on primary legislation for England and Wales. The National Assembly for Wales is represented on the English Technical Sub Group and has its own Capital Finance Task and Finish Group, working on issues such as secondary legislation for Wales, a replacement for Minimum Revenue Provision and longer term implementation of the new system.

        (c) Scottish Executive - Mary Munro

5.5   Mary Munro introduced the paper circulated with Paper PCSG 14 01/02, which is an extract from 'Renewing Local Democracy : The Next Steps' published on 27 March, outlining proposals for the reform of the local authority capital finance system in Scotland. A Bill is about to be introduced in the Scottish Parliament, which provides a platform to bring in legislation for this, which it is hoped will be passed early in 2003. Much work will be necessary before then. A working group is being established in Scotland to progress this, which will draw on the work in England and the work of the PCSG, with the aim of preparing legislation by the end of this year. It is intended to test the new system in 2003 for implementation in 2004.

5.6   It was queried whether the work of the various groups is made public. Pam Williams reported that papers for the Technical Sub Group are not made public but that key conclusions of the work are reported to the Capital Programmes Working Party, whose papers are generally available. Lisa James reported that the papers of the Capital Finance Task and Finish Group are not made public, but the papers of the group it reports to, the Consultative Forum on Finance, are. Mary Munro reported that the minutes of the Working Group in Scotland will be made public.

        (d) HM Treasury - Frances Houston

5.7   Frances Houston reported that HM Treasury is working on the arrangements for any national limit. She stressed that the preferred option is not to impose a limit. A paper had been taken to the Technical Sub Group on this. HM Treasury is looking to obtain the best information possible before taking a decision. The paper suggests some dates in relation to forecasts and the LGA is going to respond to the paper. The LGA is also being asked for views on the timing of the decision.

5.8   It was queried whether there has been any connection between the prudential developments and the Whole of Government Accounts programme. Nick Buxton confirmed that this is the case. There are clear parallels between the prudential framework and the WGA programme, especially with respect to information requirements.

6.     FUTURE TIMETABLE

6.1   The Chairman introduced Paper PCSG 15 01/02 and invited the PCSG to discuss and agree a future timetable of work for the Steering Group consistent with achieving implementation of the prudential framework from 2004.

6.2   In the first instance, he wishes to arrange meetings for mid and later this year first to receive issues papers and then to progress a further draft of the Code. However, a number of members of the PCSG cannot make the proposed dates in July. After discussion, it was agreed that it is important to the overall timetable to hold a meeting in July and that comments from members who cannot attend will be taken through correspondence.

6.3   Pam Williams confirmed that the draft timetable proposed is consistent with the preparatory work being undertaken for legislation.

6.4   Martin Easton proposed a further item for the July meeting on how the overall financial framework for local authorities is coming together. It is important that the proposed prudential developments fit into local authorities' financial planning cycle over the medium term and annually. It was agreed that Martin Easton will prepare a paper on this for the July meeting.

6.5   With this addition, the future work programme for the PCSG circulated with the agenda as an appendix to Paper PCSG 15 01/02 was agreed.

7.     RESPONSES TO THE EXPOSURE DRAFT OF THE PRUDENTIAL CODE

7.1   The Chairman introduced Paper PCSG 16 01/02. The Steering Group was invited to discuss and consider the responses received to the exposure draft and a summary analysis of the responses. He noted the very impressive and substantial response to this key document. The responses received demonstrate overall support for the work of the PCSG, for the principles of the draft Code and the processes proposed. There are however mixed views on the number and robustness of the indicators in the draft. He proposed that the meeting discuss the responses received and at the next meeting receive issues papers on the major points raised in the responses, together with initial feedback from roadtesting.

7.2   It was queried whether this meant that it was proposed to accept the current draft or whether changes will be made in response to comments received. The Chairman stressed that he expected that changes will be made to the current draft in response to comments received, the roadtesting and consideration of the elements that the Steering Group had specifically left to the next stage for consideration such as interaction with the HRA.

7.3   It was agreed that this meeting of the Steering Group would discuss the responses and then receive issues papers on the major points raised at their July meeting, before proceeding to a first full redraft at their October meeting.

7.4   At the request of the Steering Group, the Secretary then took the meeting through the summary analysis of the responses. She invited discussion on the points raised and also on whether any amendments or additions need to be made to the initial summary analysis.

        General - clarity

7.5   The PCSG agreed that key considerations are how detailed the Code should be and its key audience.

7.6   Several comments were made that the Code will be primarily for use by professional finance officers and that, generally, Codes of Practice are not readily accessible to non-specialists.

7.7   However, members also stressed that the decision making process will be for the Authority and this must not be seen as a mainly technical issue. The outputs required by the Code, and particularly the prudential indicators, need to be widely understood. And Councillors will need to have an understanding of which figures are important.

7.8   Since it is intended that statute will require compliance with the Prudential Code, an important requirement will be to satisfy Parliament that the Code will fulfil the required role, so the Code will need to be accessible to MPs.

7.9   An executive summary should be considered. Also, putting more explanation back into the Code itself. It was also agreed that a reduction in the number of indicators may be possible as further work is undertaken on the Code.

        Prudential indicators for debt

7.10  The current draft has three different levels of indicator in relation to debt (prudential limit, authorised limit and estimates of maxima). This is widely felt by respondents to be unnecessarily complex.

        Prudential indicators for treasury management

7.11  The Secretary asked that an addition be made to the summary analysis - that several respondents had commented that the requirement for treasury management indicators should be part of the CIPFA Treasury Management Code rather than the CIPFA Prudential Code. It was agreed to add this point to the summary analysis of responses received.

7.12  It was also noted that there is a strong view in the responses that these indicators should be simplified, with some responses seeing no requirement for anything other than compliance with the TM Code. The PCSG agreed that the treasury management indicators in the draft Prudential Code should be subjected to road testing, that the PCSG will receive an issues paper on the indicators and that further consideration should be given as to whether the most appropriate place for their incorporation is the Prudential Code or the Treasury Management Code.

        Prudential indicators for capital expenditure

7.13  The PCSG agreed that an alternative name should be found for 'capital expenditure unfinanced'.

7.14  In response to the point raised by the GLA (paragraph 2.24 of the summary report), Pam Williams reported that it is intended that legislation for England will clarify who is to take decisions on prudential indicators and that this will be handled in the same way as budget setting.

        Vires

7.15  Martin Easton stated that the legal position of the Code will need to be clear and questioned whether it will turn every word of the Code into a legal requirement. Pam Williams said that it will be important to distinguish what is a requirement of the Code and what is guidance. She suggested that it would be desirable to get DTLR legal experts to cast their eyes over the Code when it has been redrafted and this was welcomed by the Steering Group.

        Technical issues

7.16  It was agreed that issues papers should be prepared on the following vis-à-vis their treatment:

  1. premiums on the early repayment of debt
  2. FRS 17
  3. other long term liabilities and capital expenditure unfinanced.

7.17  Several responses had asked for clarification on the role of the PWLB in the new system and Pam Williams directed querants to paragraph 4.37 of Part II of the white paper 'Strong Local Leadership - Quality Public Services'.

7.18  Many responses had stressed the need for further information on future government support for capital investment. More information on the level of such support will be available following the spending review, in the autumn.

        Responses from England, Wales and Scotland

7.19  The Steering Group commented that similar issues are being raised by respondents in England, Wales and Scotland.

        Response from DTLR and HM Treasury

7.20  Graham Fletcher reported that the DTLR and HM Treasury welcomed the draft Code and expressed particular support for the matters identified in paragraphs 6.2 of the summary report. They felt that further work was necessary on the items identified in paragraph 6.3 of the summary report. Their detailed response had suggested possible ways forward on these but if there are alternative ways to address the same ends then that would also be acceptable to them.

        Next steps

7.21  It was agreed that the Secretary will prepare issues papers for consideration at the next meeting of the Steering Group.

8.     ROAD TESTING THE PRUDENTIAL CODE IN 2002

8.1   The Steering Group received Paper PCSG 17 01/02 for information on the programme of road testing for the draft Prudential Code in 2002 that CIPFA is undertaking.

9.     DEPRECIATION

9.1   It was agreed that the reference group of PCSG will meet separately to discuss the paper that CIPFA is preparing on the role that depreciation could play within the prudential framework, once it is published. It was noted that this will be a discussion paper and will be a public document.

10.     ANY OTHER BUSINESS

10.1   It was agreed that a copy of the project brief for the review of capital accounting will be sent to members of the PCSG with the minutes of this meeting, for information.

11.     DATES OF NEXT MEETING

          To be arranged.

          NB Now agreed for:

11 July 2002 (morning) in the Thistle Charing Cross Hotel
16 October 2002 (all day)
4 December 2002 (morning)
5 February 2003 (morning).

All meetings will commence at 10.30am and be held at CIPFA, 3 Robert Street, London unless separately notified.