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CIPFA today launched a consultation on proposals to strengthen the Prudential Code, following growing concerns over local government commercial property investments.
The Prudential Code is a professional code of practice that aims to ensure local authorities’ financial plans are affordable, prudent and sustainable.
To date, the provisions in the Code have not prevented a minority of councils from taking on disproportionate levels of commercial debt to generate yield.
The Code currently states that “authorities must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed”. This has been clarified previously to include “therefore, local authorities must not borrow to fund primary yield generating investments”.
The key changes outlined in the consultation include:
The consultation paper can be accessed here.
The proposals follow on from the National Audit Office report into local authority commercial investments (Feb 2020), as well as recommendations by the Public Accounts Committee (Jul 2020) that the Prudential Framework should be reviewed.
Local authorities are required by regulation to have regard to the Prudential Code when carrying out their duties in England and Wales under Part 1 of the Local Government Act 2003, in Scotland under Part 7 of the Local Government in Scotland Act 2003, and in Northern Ireland under Part 1 of the Local Government Finance Act (Northern Ireland) 2011.
CIPFA, the Chartered Institute of Public Finance and Accountancy, is the professional body for people in public finance. CIPFA shows the way in public finance globally, standing up for sound public financial management and good governance around the world as the leading commentator on managing and accounting for public money.