Chartered Institute of Public Finance and Accountancy

Draft Minutes

Committee PRUDENTIAL CODE STEERING GROUP
Date 24 February 2003
Venue IPF, 27 Queen Anne's Gate, London, SW1H 9BU

1 APOLOGIES
1.1 Apologies were received from Paul Bannister, Ken Barnes, Peter Derrick, Will Godfrey, Ronnie Hinds, Lyn James, John Layton, Paul Mayers, Stephen Sheen, Peter Swaby, David Thomas and Norie Williamson. Andy Ralph from HM Treasury attended for Frances Houston and Christie Smith from the Scottish Executive for Mary Newman.
2 MINUTES AND MATTERS ARISING
2.1 The minutes of the last meeting held on 16 January 2003 were approved as a correct record.
2.2 In relation to minutes 6.13, Peter Martin confirmed that the GLA had considered the amendment to the Local Government Bill and took the view that there is no need for any specific reference in the Prudential Code as a result.
3 UPDATE ON THE WIDER PRUDENTIAL FRAMEWORK

(a) ODPM - Pam Williams
3.1 Pam Williams reported that the Local Government Bill is progressing through Parliament and had now completed the Committee stage in the House of Commons. She confirmed that no changes had been made to Part 1 of the Bill that will affect the way the prudential framework will work or the expectations with respect to legislation in the current draft of the Prudential Code. The question of whether the start date will be 1 April 2004 remains unresolved and is dependent on future progress with legislation. As part of the process of assisting the House of Commons Committee's consideration of the Bill, the Committee had been provided with a first set of draft regulations with commentary and a copy of the draft Prudential Code as presented to the January meeting of the Steering Group. Much support had been expressed by the Committee for reliance on accounting practice. The draft regulations are being sent to the CPWP - TSG but the date for wider publication was not known.
3.2 It was queried what was the crucial time constraint for legislation in order to effect a 1 April 2004 start date. Pam Williams commented that Royal Assent - or all bar the formalities - would be necessary before the summer recess if an April 2004 start date is to be practicable.

(b) NAW - Lisa James
3.3 Lisa James reported that progress with the Local Government Bill that will cover England and Wales was being watched with interest. Secondary legislation would be a matter for the Assembly. The Capital Finance Task and Finish Group for Wales would meet the following week.

(c) Scottish Executive - Christie Smith
3.4 Christie Smith reported that that the Local Government in Scotland Act 2003 had now received Royal Assent. Attention was currently focused on commencement orders. There will be a transitional period during 2003 in preparation for full commencement of the prudential framework in Scotland from 1 April 2004.
3.5 It was queried whether the loans fund will continue into the new system. Christie Smith confirmed that it would do so.

(d) HM Treasury - Andy Ralph
3.6 Andy Ralph reported that the Treasury is working with statisticians within ODPM in order to collect better information on the likely take up of additional capital expenditure in the prudential system.
4

4 DRAFT PRUDENTIAL CODE
4.1 The Chairman introduced the revised draft of the Prudential Code. He expressed the hope that, in order to meet the overall timetable, the Steering Group would agree the draft for publication for consultation.
4.2 The Chairman highlighted paragraph 39 of the draft Code, regarding estimates of impact on the Council Tax, which had been the only subject of considerable debate at the January meeting. At that meeting, the Steering Group had resolved to include all net revenue expenditure within the indicator, rather than just the revenue effects of the capital side. He stressed that affordability is central to the Prudential Code, and the forecast Council Tax is an essential part of the affordability test. He recognised that three year forward estimates of Council Tax may be controversial in some Councils. He recommended that the requirement is highlighted in the consultation, and forms part of the consultation draft.
4.3

Keith Beaumont confirmed that the LGA is content for this to form the basis of consultation with authorities.
4.4 It was agreed that a specific question on this should be added within the list of consultation questions in Appendix E and that consultation on the Council Tax indicator should be as proposed in the current draft.
4.5 It was noted that, if they wish, authorities could have additional local indicators in respect of affordability, for example looking at the impact of the revenue effects of capital investment only on the Council Tax.
4.6

The Steering Group agreed to take the paper by exception rather than page-by-page.
4.7 Pam Williams reported that the ODPM had some minor points in respect of the detailed interaction with legislation. It was agreed that these points will be incorporated within the consultation draft. Also, it was confirmed that the Steering Group is content that the executive summary does not appear in bold type (ie it is an explanatory statement and will be regarded as part of the draft Code insofar as it assists in interpreting the draft Code).
4.8 Andy Ralph commented that the explanatory note in paragraph 5 that the government has indicated that the long stop powers will be used only in exceptional circumstances should either be omitted, or expanded upon to describe the cases when this might occur that have been reported during the passage of the Local Government Bill to date. It was agreed that this point does not need to be included within the Code and will be deleted from the consultation draft. It was noted that the importance to the prudential framework of not using these powers would be stressed elsewhere.
4.9 Ian Jackson commented that it is likely that comments from practitioners in Scotland will include that whilst the Code requires three year rolling estimates, the forward figures from the Scottish Executive are not done on this basis, and that the requirements in paragraphs 39-41 add nothing with respect to affordability to what authorities are already required to do in Scotland.
4.10 Howard James reported that the NAW has some minor drafting points.
4.11 It was agreed that, subject to the above, the current draft of the Prudential Code will be recommended to the Treasury Management Panel for onward recommendation to the Public Finance and Management Board for publication for consultation.
5 TRAINING AND GUIDANCE FOR THE PRUDENTIAL CODE
5.1 The Secretary introduced the paper on the training and guidance planned by the CIPFA Group during 2003.
5.2 The Steering Group noted the contents of this paper.
5.3 Volunteers were requested from the Steering Group for the technical working group to oversee detailed guidance on the application of the Code. Several members volunteered.
6 DATE OF NEXT MEETING
6.1

It was agreed that, subject to the publication of the exposure draft of the Prudential Code for consultation in March, dates for the next meeting of the Steering Group will be canvassed for end June/beginning July to consider responses.

NB The exposure draft of the Prudential Code was subsequently approved for publication for consultation by the Treasury Management Panel on 26 February 2003 and the Public Finance and Management Board on 27 February 2003. The exposure draft was published on 11 March 2003. The consultation period runs until 15 May 2003.