Responding to COVID-19: insight, support and guidance
CIPFA has noted the proposed modification to PWLB borrowing requirements. This represents one of the most significant interventions by government since the inception of the Prudential Framework in April 2004. CIPFA understands that the underlying rationale for the proposed measures is to first prioritise the use of PWLB for investment in services and local regeneration, and secondly the related aim to dampen the extent to which local authorities undertake borrowing to invest in commercial property purely for commercial gain by removing the PWLB as a borrowing route.
That rationale is consistent with statutory guidance, the Prudential Code and is entirely consistent with CIPFA's messaging on this matter. Consequently, CIPFA welcomes these proposed changes to PWLB rules, while also expressing regret that the behaviour of some authorities has given rise to these changes which will affect all councils.
CIPFA takes this opportunity to remind local authorities of their legislative responsibility to ‘have regard’ to the Prudential Code. For CIPFA members, adherence to the Code is of course a mandatory requirement of membership. More widely it forms a professional requirement for all accountants working in local government to follow CIPFA guidance. Local authorities and professional accountants must have regard to the spirit of the prudential framework as an enabling regime rather than view it as a prescriptive framework where rules can be interpreted at the margins.
As a result, it represents a flexibility in public financial management which, in the opinion of CIPFA, should be jealously guarded by all stakeholders. In relation to the proposals by HM Treasury, CIPFA advises all CFOs to operate these new arrangements with immediate effect. When regulations follow consultation, we believe that they will apply to both financing and refinancing, and so councils should avoid the risks that could result if they borrowed from the PWLB for commercial purposes during the transition. Government has acted with clarity on the use of the PWLB and this note advises CFOs to maintain professional conduct in the eyes of stakeholders and the Institute by acting in the spirit of this.
More widely, CIPFA would remind all decision makers that the requirements of the Prudential Code are not limited to any particular form of borrowing or financial instrument. The policy intention is clear and CIPFA’s recent guidance entitled ‘Prudential Property Investment’ was designed to enable local authorities to navigate the decision making behind borrowing and investment for commercial property related matters. The proposed intervention by HM Treasury could signal a move towards a more prescriptive framework which CIPFA considers all stakeholders have an interest in avoiding. The most appropriate way to safeguard the current framework is to demonstrably have regard to the Prudential Code and to be advocates for the principles therein.
Finally, CIPFA notes that the government has said that it intends to lower rates on all new PWLB loans once a robust system is in place and market conditions allow. We therefore encourage councils to respond on this point in the consultation period.