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Prudential Code Consultation

01-02-2021

CIPFA is pleased to present the consultation for the Prudential Code for Capital Finance in Local Authorities (2017) (Prudential Code) to be updated.

In response to the recommendation of the Public Accounts Committee and the substantial increase in commercial investment, CIPFA is proposing to strengthen the provisions within the code. The areas we have proposed to strengthen are as follows:

  • Provisions within paragraph 45 of the Prudential Code to state clearly that borrowing for debt-for-yield investment is not permissible under the Prudential Code. While recognising that commercial activity is part of regeneration, it does not constitute the primary purpose of investment and unnecessary risk to public funds.
  • Any commercial investment undertaken should be consistent with statutory provisions, proportionate to service and revenue budgets and consistent with effective treasury management practice.
  • Requirements to assess the affordability of commercial activity within local authorities' capital strategies. CIPFA will also publish, early this year, further guidance on good practice for development of capital strategies.
  • The addition of sustainability and ensuring that the capital expenditure is consistent with a local authority's corporate objectives (such as diversity and innovation) to the objectives in the Prudential Code.
  • Introduction of new prudential indicators on affordability. External debt to net service expenditure (NSE) ratio, and commercial income to net service expenditure.
  • The introduction of the liability benchmark to promote good practice and understanding of local authority's debt management in relation to capital investment.

CIPFA welcomes comments and responses on these proposals and thanks the sector for their time in responding. The consultation on Treasury Management in the Public Services: Code of Practice and Cross-Sectoral Guidance Notes is also available for response and CIPFA recommends responding to both consultations.

Local authorities are required to 'have regard' to the Prudential Code when developing their capital investment plans. CIPFA is now issuing the Consultation on Proposed Changes to the Prudential Code.

The closing date for responses is 12 April 2021. Please e-mail your response to policy.technical@cipfa.org. It is intended to publish the revised code towards the end of the year for 2021/22 implementation.