01 August 2003
The Office of the Deputy Prime Minister has published draft capital finance regulations that will govern the new system of prudential borrowing for local authorities.
One of the main effects of the regulations will be to give statutory backing to the prudential code for capital finance, which CIPFA drew up for the government.
The code underpins the new financial regime, which local authority leaders have long been campaigning for as a means of giving councils greater autonomy.
Ministers have said they hope prudential borrowing will be in place for the start of the new financial year next April, but this depends on the Local Government Bill that is going through Parliament being on the statute book by that time.
Maureen Wellen, CIPFA's assistant director for local government finance and policy, told Public Finance the publication of the draft regulations was 'significant' and made it more likely that the 2004 deadline would be met.
She said: 'The wording used makes it clear that the ODPM has published the regulations now to ensure the new system can come in at the earliest time.
'If it hadn't run the consultation exercise, then the deadline couldn't be met. It is keeping April 1 next year open as a possible start date.'
Currently, the ODPM gives credit approvals for all borrowing. But, under the new framework, councils will be able to borrow funds for capital investment as long as the level of debt they take on reflects the resources they have at their disposal and remains within prudent limits.
The recent announcement that the Private Finance Initiative would no longer be used for projects under £20m, most of which are undertaken by local authorities, means take-up is likely to be widespread.
Wellen welcomed the duty that the draft regulations will place on local authorities to adhere to the CIPFA code when they set their borrowing limits.
She said the code would replace the complex regulatory framework that authorities currently have to negotiate if they want to borrow, and placed a welcome emphasis on good accounting practice.
'The ODPM is trusting local authorities accounts to show what their liabilities are, so it is relying on professional self-regulation.'
The consultation runs until October 29.
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