27 February 2004
Nick Raynsford has confirmed that the government will not exercise reserve powers to limit how much local authorities can borrow when the Prudential Code comes into force on April 1.
Under new powers contained in the Local Government Act 2003, authorities will be free to decide what level of debt they can afford to take on, without first having to seek ministerial approval of their plans.
Authorities will use the Prudential Code drawn up by CIPFA to establish their borrowing ceiling.
But the government has retained the power to impose either a borrowing limit on an individual council if it believes it is not being prudent, or a national ceiling if it believes the economy justifies it.
However, Raynsford said on February 23 that ministers would not use them in the forthcoming financial year.
'We are satisfied that there is no need to impose a limit on local authorities' borrowing in 2004/05,' the local government minister said. 'This means the new prudential system will start operating in the way that we and local government always intended.'
The new regime will allow hard-pressed councils to borrow to fund capital projects and is expected to kickstart many investment programmes.
Vernon Soare, CIPFA's policy and technical director, welcomed the news. 'We are very pleased because it indicates that authorities have clearly understood that they have to borrow within sensible limits,' he said.
London Mayor Ken Livingstone could borrow up to £400m to fund transport projects under the code.
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