CIPFA - Panels - Treasury Management Panel

Home > Panels > Technical Panel Websites > Treasury Management > PCSG > Minutes

Draft Minutes

Committee	PRUDENTIAL CODE STEERING GROUP
Date	16 October
Venue	Conference Room, CIPFA, 3 Robert Street, London, WC2N 6RL

1. MEMBERSHIP

1.1 As reported to the July meeting, Iain Richardson has left the Audit Commission. Both Paul King and Paul Mayers from the Audit Commission attended the meeting and Paul Mayers will represent the Commission pending Iain's replacement.

1.2 Mary Munro has left the Scottish Executive. The Scottish Executive will be represented at the PCSG by Mary Newman, who attended the meeting.

2. APOLOGIES

2.1 Apologies were received from Paul Bannister, Peter Derrick, Will Godfrey, Ronnie Hinds, Ian Jackson, Peter Swaby, Mike Weaver and Norrie Williamson.

3. MINUTES AND MATTERS ARISING

3.1 The minutes of the meeting held on 11 July were approved as a correct record.

3.2 There were no matters arising not on the agenda.

4. DRAFT PRUDENTIAL CODE

4.1 The Chairman introduced this item. The Steering Group had before them a commentary on the revised draft of the Code, a revised draft with all amendments from the exposure draft highlighted and a 'clean' copy of the revised draft. It was agreed to consider the commentary paper first, taking points of principle, and then to go through the revised draft - the version with all the amendments highlighted - page by page. The Secretary was asked to introduce the commentary report.

4.2 The Secretary stressed that the revised draft is work in progress towards the second exposure draft of the Code. The revised draft had been updated with decisions taken by the PCSG at their July meeting and for experiences from roadtesting to date. Further amendments would be necessary, particularly in line with developing primary and secondary legislation and with roadtesting.

Matters arising from the commentary report
(Paragraph numbers refer to the commentary report)

4.3 With respect to the GLA (paragraph 37), Peter Martin confirmed that the process would be the same as for budget setting. This means that there will be separate prudential indicators for the GLA and for each of its functional bodies, which will all be approved by the Mayor and Assembly to take account of affordability.

4.4 It was queried whether a complete set of separate prudential indicators will be required for the HRA and the General Fund (paragraphs 63-67). It was reported that work on this is ongoing but it is hoped that separate indicators will be required for the capital financing requirement but not for actual debt. This will be a matter for government and devolved administrations to determine.

4.5 The terminology 'capital financing requirement' which replaces that of 'capital expenditure unfinanced' in the current draft was considered (paragraphs 10-11). It was agreed to keep this revised terminology for the present, but to review this when the detailed definition for the amount to be calculated is finalised. It will be important to have a short name which people are comfortable using. It was confirmed that the figure is analogous to that of 'capital undischarged', although it was not proposed to use that term.

4.6 In respect of the authorised limit (paragraph 43), Pam Williams reported that in the context of looking at draft primary legislation and in discussion with the CPWP TSG, consideration is being given to addressing this matter in the legislation by allowing for the limit to be increased in certain circumstances. The Code could then follow the legislation.

4.7 John Layton updated the PCSG in respect of the incorporation of FRS 17 within the local authority accounting SORP (paragraphs 74-76). The CIPFA/LASAAC Joint Committee would be consulting on its proposals shortly. In summary, these are to include the full implementation of FRS 17 to the original timetable provided that the necessary secondary legislation is in place to ensure that this does not impact on the Council Tax in ways different from the existing requirements. The nature of any deficit calculated under FRS 17 - which will be particularly large for unfunded schemes - vis-à-vis the Prudential Code will need to be carefully considered. The Secretary reported that an exploratory meeting on this would shortly be held by CIPFA with HM Treasury. It was agreed that FRS 17 issues with respect to the Prudential Code will be considered by a future meeting of the Steering Group.

4.8 With respect to premiums (paragraphs 52-53), the proposal to include premiums within the definition of the capital financing requirement was not favoured by the PCSG because premiums relate to revenue rather than capital expenditure. Instead, further consideration needs to be given to the position of prepayments made in accordance with accepted proper practice within the new system.

The revised draft Code

4.9 It was agreed that the revised draft incorporates the previous decisions of the PCSG. The following comments were made on the revised draft:

(page numbers refer to the version of the revised draft which has amendments from the earlier exposure draft highlighted; paragraph numbers are those for the revised draft.)

page 5. The preface should now be reviewed and revised to reflect the order of objectives on page 7 and to spell out the framework of the document.

page 7. The bullet points in paragraph 2 should reflect the revised ordering in paragraph 1.

page 8. Paragraph 5 should be in bold.

The use of the words 'must' and 'should' within the Code was also raised. It was noted that, since the proposed legislation will place reliance on the Prudential Code, its text will be reviewed by Parliamentary Counsel. The results of that review will be considered by the PCSG and consideration of the precise wording (eg 'must'/ 'should') will be undertaken then.

A specific reference to the date of implementation of the Code should be inserted, the actual date to be included when known. This may be different in England, Wales and Scotland. It was confirmed that the Code will not apply in Northern Ireland, where borrowing is undertaken by the Executive not by local authorities.

page 8/9. Paragraph 8 is now out of date. The current text should be deleted. Revised text was requested from ODPM, the Welsh Assembly Government and Scottish Executive in due course.

page 10. Paragraph 11. It was queried whether the definition of capital expenditure will change in the new system. It was confirmed that the draft Bill for England and Wales adopts proper practices but with the ability to amend this by secondary legislation.

page 12. Paragraph 17. The revised terminology of operational boundary was supported. The requirement to review in year rather than just the year end position was discussed. It was agreed to keep the current redraft. This will be reviewed again following the completion of roadtesting.

page 16. Paragraph 26. In line 3, refer to 'exposure to fixed interest rates' rather than to 'fixed interest rate risk'.

page 17. Paragraph 31. The need for a prudential indicator for this risk is agreed but the current indicator and its explanation should be reviewed.

page 18. Paragraph 32. The wording here should reflect the fact that the strategy should come first.

page 18. Paragraph 33. The key point is accepted. It is likely that there will be some wording on this point in the notes to the legislation and the detailed wording of the Code and those notes should be aligned in due course.

page 19. Paragraph 37. Clarify that 'revenue forecasts' include both income and expenditure.

page 19. Paragraph 38. Stress that this is not intended as an exhaustive list. The important point is that all expenditure and income should be taken into consideration. Specifically add a point on the consideration of contingent liabilities. Also, in addition to the need to consider affordability, cross refer to the requirements to link plans to wider strategic processes such as asset management planning. The last bullet point re risk and uncertainty should be strengthened, for example by making it a separate paragraph.

page 20. Paragraph 39. Add a reference to known events beyond 3 years.

page 20. Paragraphs 41 and 42. The figures for individual local authorities will be very different. The differences between authorities will not necessarily reflect differences in affordability between them, since there will be differences in support for capital expenditure from government. The major focus will be on movements over time at the same local authority. Martin Easton expressed concern that, in his view, the current draft does not adequately reflect these differences in support from central government and he has concerns that the impact of the indicator on affordability will not be well understood in consequence. It was agreed that Martin Easton will work with the Secretary, particularly on the explanatory notes, and that further consideration on these paragraphs will be given at a future meeting of the PCSG.

page 20. Paragraph 42. Clarify impact on the Council Tax is net of government support.

page 22. Paragraph 56. Include a link here to wider strategic processes. Also, review whether to do so elsewhere in the Code to reinforce the linkages.

page 23. Paragraph 57. Check the latest position in all jurisdictions re the Chief Finance Officer signing the accounts.

page 28. Paragraph 76. This paragraph may need to refer to managed debt as well as transferred debt. The detailed treatment for transferred and managed debt should be checked with Trevor Emmott, ODPM.

4.10 The report to the Treasury Management Panel on 18 October 2002 was noted.

[NB The Treasury Management Panel met on 18 October 2002 and agreed the recommendation from the PCSG that the Prudential Code should continue to contain the current cross reference to the TM Code and in addition the prudential indicators for treasury management.]

5. UPDATE ON THE WIDER PRUDENTIAL FRAMEWORK

(a) ODPM - Pam Williams

5.1 The meeting had before them the progress report from the technical sub group to the Capital Programmes Working Party for the first half of 2002. Pam Williams reported that the detailed work of the TSG is continuing, with colleagues from the National Assembly for Wales. Progress with legislation is dependent on the Queen's Speech, which is programmed for mid-November.

[NB Date for Queen's Speech is now set for Wednesday, 13 November.]

(b) NAW - Lisa James

5.2 Lisa James reported that issues for secondary legislation are being considered. Again, progress is dependent on the Queen's Speech.

(c) Scottish Executive - Mary Newman

5.3 Mary Munro reported that it is intended to repeal S94 at stage 2 of the Local Government Bill in Scotland. The necessary amendments are needed for the end of November. A technical capital group including representatives from COSLA and CIPFA has been established to take forward matters in respect of regulation. She expects that there will be a heavy reliance on proper practices in regulations in Scotland. She further reported that the position with respect to the HRA in the prudential framework is being further considered.

(d) HM Treasury - Frances Houston

5.4 Frances Houston reported that initial meetings have been held with the Whole of Governments Accounts Team and statisticians on information requirements. There would be nothing further with respect to the national limit until closer to the date.

6. DEPRECIATION

6.1 The PCSG received the notes of the meeting of its reference group on depreciation on 14 August.

6.2 With respect to minute 9 of the notes, Nick Buxton agreed that he will look into this and report back.

6.3 Pam Williams said that there is a shared objective to move to proper depreciation provided that this can be made both robust and affordable. Work on this is being taken forward in the context of the whole of government accounts programme and in preparing for the forthcoming consultation paper on government support. It is clear, however, that full depreciation will not feature from the beginning of the new system and therefore a replacement for MRP is required. There is no desire to invent anything unnecessarily complex in the interim.

6.4 The Chairman summarised that the discussion paper is an important contribution to the debate on depreciation, which is work in progress. Full depreciation will not be practical on day one and an interim replacement for MRP will be necessary. Authorities will need forward notice of this for planning purposes.

7. FUTURE TIMETABLE

7.1 The PCSG reviewed their previously agreed future timetable. It was noted that some issues, particularly in respect of detailed legislation, are not being progressed as quickly as had been envisaged in this timetable. The Secretary was asked to consider what would be the latest date for the publication of the second exposure draft of the Prudential Code consistent with its being taken to the September 2003 meeting of the Institute Council, and to report on this at the PCSG's next meeting.

7.2 The Secretary confirmed that with respect to the interrelationship between the Code and the HRA, the matters that need to be established in respect of the proposed secondary legislation for England, Wales and Scotland individually are as stated in paragraph 67 of the commentary report for Paper PCSG 19 02/03.

8. ROAD TESTING THE DRAFT PRUDENTIAL CODE IN 2002

8.1 The PCSG noted the update report on the road testing.

9. DATES FOR NEXT MEETINGS

4 December 2002 (morning)
5 February 2003 (morning).

All meetings will commence at 10.30am and will be held at CIPFA unless separately notified.