Finance chiefs call for tighter council borrowing laws

 The laws governing the rules around council borrowing should be strengthened, according to a leading public sector organisation. 

As part of its response to a Treasury consultation on the future lending terms of the Public Works Loans Board (PWLB), the Chartered Institute of Public Finance and Accountancy (CIPFA) has called for compliance with the Prudential Code to be made a statutory requirement and has committed to strengthening the Code by early 2022.

The Prudential Code currently sets out that local authorities should not borrow purely for yield or other speculative purposes.

However, while councils must ‘have regard to’ the code, they can choose not to follow it.

Changing the legislative requirement from ‘have regard to’ to ‘must comply with’ would ensure that all councils adhere to the requirements of the code, according to CIPFA.

Last month, a group of MPs accused the government of being ‘blind’ to the ‘extreme risks’ taken by some councils investing in shopping centres, office blocks and other properties.

A report by the National Audit Office, which was published in February, revealed councils in England spent £6.6bn on property investments between 2016 and 2019.

‘CIPFA absolutely supports the spirit in which the government’s proposals are intended and agrees that it is inappropriate for local authorities to risk taxpayers’ money on risky, profit-making ventures. I have already recommended that CFOs should immediately implement these proposals,’ said CIPFA chief executive, Rob Whiteman.

‘As we recover from the impact of the pandemic, councils will be increasingly important to the revival of local economies. The financial pressures caused by COVID-19 will mean that councils will require support in the form of lending terms that do not impede their ability to undertake this vital role in society.

‘To that end, we are clear that any revisions to the sector’s relationship with the PWLB are proportionate, fit for purpose, and remain principles-based rather than prescriptive,’ he added.

Photo by Carlos Muza