22 February 2002
Despite ministers warning local authorities in last December's finance white paper that ratings were an 'unnecessary expense', up to three councils are thought to be close to or considering undertaking a rating exercise.
Ratings, which cost approximately £25,000, have been slow to take off in the UK. So far, only two British councils have bothered to obtain one – Huntingdonshire District Council three years ago and the Royal Borough of Kensington and Chelsea in 2001. Both received one of the highest ratings available, triple-A.
A third 'local authority' – Transport for London – received a rating of double-A minus when it was assessed last year.
This contrasts with the rest of Europe, where local and regional government are regularly rated.
The main advantage for a cash-strapped council is that it can prove its creditworthiness to potential outside investors. It could also, as in the Huntingdonshire case, be used to back up the Best Value process.
As councils are being encouraged to become more business-minded, ratings could prove increasingly attractive.
'If the investment that is required in this country is going to come from the private sector, then credit ratings are de rigueur,' said Nick Preston, public finance director at Standard and Poor's rating agency.
However, the government argues that it is still cheaper for councils to borrow money from the Public Works Loan Board than from private banks.
One conspiratorial theory in the City is that the government is reluctant to allow councils to obtain a rating as this could lead to them seeking alternatives to the Private Finance Initiative route.
By being rated, the theory continues, councils will be able to approach banks directly rather than have to use the PFI.
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