22 April 2005
The system of local authority capital finance in England is not working, despite improvements since the introduction of the Prudential Code, a new study claims.
A joint report, by the Policy Exchange and the New Economics Foundation think-tanks, calls for a further loosening of restrictions on councils' capital expenditure powers. This would allow increased use of commercial investment tools.
But despite calling for more competition in the market, the report, published on April 14, also demands a 'revised and diminished role' for the Public Works Loan Board.
The PWLB is the most popular method of raising local capital finance because it offers low-interest loans.
The report's authors claim that the Prudential Code, developed by CIPFA and introduced in 2004, has benefited authorities by instilling financial discipline into new council borrowing powers.
Payment for local investment: new finance mechanisms for local government calls for further reform.
The think-tanks argue that the PWLB 'crowds out' other sources of capital finance by offering cheap loans.
Making it 'the lender of last resort' would, they say, ensure councils use commercial investment tools, including locally raised bonds.
PFapr2005
