Update for codes as local government landscape shifts

16 Mar 17

New ways of working bring new risks, so the Treasury Management Code and the Prudential Code need to remain up to date and relevant

Sustained austerity and the growth of localism have affected how public services are provided, with innovative delivery models and partnership working giving rise to a range of risks to manage.

Risk management is at the heart of the Treasury Management Code’s principles, which provide a framework for public service organisations to understand their appetite for risk clearly and to manage their investments and capital transactions to gain optimum performance consistent with the associated risks.

The Treasury Management Code, to which local authorities are required to “have regard”, also aims to provide transparency and governance around treasury management decision making and to ensure that public service organisations have formal and comprehensive objectives, policies and processes for their treasury management activities.

Given that the Treasury Management Code was last updated in 2011, the time has come to review its appropriateness to the current landscape and to consider how it could be strengthened to ensure that all risks are managed effectively. CIPFA is therefore seeking views from public service organisations so it can keep the code relevant. It is particularly keen to hear from those that have not yet adopted the Treasury Management Code to understand the reasons for this and, if possible, address them.

Alongside this consultation, CIPFA is seeking views on the Prudential Code. So far, this has stood the test of time very well, with only relatively minor changes since its introduction in April 2004. Like the Treasury Management Code, the Prudential Code was last reviewed in 2011 and, since then, the local authority landscape has changed significantly, particularly with continued, significant falls in revenue, the rise of combined authorities and the increasing diversity of capital investment.

When a local authority determines its capital investment programme, the Prudential Code requires it to consider a range of factors including:

● How the investment fits with its corporate plan and objectives

● The most efficient use of resources through asset management

● Examing different options, financing solutions and types of scheme

● The cost over the life of the project

● The impact on the revenue budget and whether the investment is affordable both now and in the future

● Whether the programme is deliverable.

Local authorities have responded to the changing landscape by reviewing their capital programmes and the factors they considered when developing them. They have sought to reduce the impact on revenue budgets and introduced invest to save schemes to provide a contribution to revenue rather than a drain on scarce resources.

Increasingly, councils are finding innovative ways of delivering services, providing different routes to generating income and changing organisational structures, for example by forming combined authorities. The focus is turning to commercial areas, including commissioning more services, maximising the commercial value of contracts and developing local markets.

These approaches bring with them the need to consider new, different risks. They are likely to introduce risks that an authority may not have experienced before, so management and governance arrangements need to be in place to ensure such risks are managed in an open, transparent way. Views are being sought on how the Prudential Code can be strengthened to encompass these risks.

These consultations are an opportunity to ensure that the two codes remain relevant and provide an essential framework for treasury management activities across all public sector organisations and for capital investment for local authorities.

For more details see: www.cipfa.org/policy-and-guidance/consultations