The Ministry for Housing, Communities and Local Government has issued its response to the consultation on changes to the prudential framework of capital finance.
This was published in November amid growing concern around councils increasingly investing in commercial property.
In its response, issued on 2 February, MHCLG said: “The government believes that it is important that local authorities take decisions in an open and transparent manner.”
As a consequence, the government is requiring local authorities to prepare an annual investment strategy as a means to boost investment transparency.
However, there is local discretion over how this is applied.
“The government does not want to increase the reporting burden on local authorities”, the MHCLG response said.
Local authorities should have the “flexibility” to decide how to structure information that is published regarding investments.
The government’s response also included a requirement for local authorities to clarify how “non-core investments” contribute towards their core objectives to deliver services to residents.
Councils will also be required to consider a list of quantitative indicators, which will highlight to members the total risk exposure from borrowing and commercial investment decisions and aid the decision making process.
Suggested indicators include a loan-to-value ratio to measure the amount of debt against total asset value.
However, MHCLG’s statement suggested that “local authorities should have discretion to set appropriate indicators and thresholds for local circumstances” as a result of the varying risk appetite between councils.
