Welsh consultation gives opportunity to reflect on the big picture

22 Jan 18

A consultation on proposed amendments to the local authorities’ capital finance and accounting in Wales has thrown up interesting questions about how councils borrow, says CIPFA's Jo Pitt. 

As we start the New Year, it is clear that the number of technical consultations coming our way is not likely to slow down.

Technical consultations are, let’s face it, often a bit dry.

But it is important to use them as opportunities to remind ourselves of the bigger picture as well as the very detailed analysis they require.

One of the corner stones of the local government finance system is how it borrows and then repays the money it owes on that loan.

We recently found ourselves discussing this topic as the technical team researched and formulated our response to the latest Welsh consultation: “The Proposed amendments to the Local Authorities (Capital Finance and Accounting) (Wales) Regulations 2003”.

Discussing the wider implications of the consultation around repayment of loans and value for money for tax payers, we considered the important implications on borrowing, of the phrase “shall be charged indifferently on all the revenues of the authority.”

With local authority borrowing a highly topical subject it is important to remember that Section 13 of the Local Government Act 2003 sets out that: “All money borrowed by a local authority (whether before or after the coming into force of this section), together with any interest on the money borrowed, shall be charged indifferently on all the revenues of the authority.”  

That means that in the event of a default on a loan, the lender could look at the entire revenue stream of the authority for reimbursement.

By looking at funding in this way a local authority is potentially able to access the most attractive market rates by being able of offer a high degree of security to lenders or rating agencies.

Given that under the Prudential Code local government seeks to ensure that their decisions are affordable prudent and sustainable maximizing and maintaining this type of security is an important part of the regulatory framework.   

To access CIPFA’s response to the Welsh consultation click here

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