Chartered Institute of Public Finance and Accountancy

Paper No PCSG 12 01/02

Committee PRUDENTIAL CODE STEERING GROUP
Venue Council Chamber, CIPFA, 3 Robert Street, London, WC2N 6RL
Date 31 October 2001
Author Maureen Wellen, Policy and Technical Manager, Capital and Treasury
Subject Revised draft of exposure draft for consultation of the Prudential Code

PURPOSE

To consider the revised draft for consultation of the Prudential Code for Capital Finance in Local Authorities

REPORT

1 Following the meeting of the Prudential Code Steering Group on 21 September, the draft presented to that meeting has been amended in line with the views expressed at that meeting. Fundamentally, the draft has been restructured to contain firm proposals, with draft text for a proposed Code up front, followed by associated discussion items.

2 The Prudential Code Steering Group is asked to consider the revised draft for approval for publication for consultation, subject to the approval of the CIPFA Treasury Management Panel and Technical Committee.

3 In order to aid discussion, the following major issues are suggested for particular consideration by the Steering Group:

(a) The proposed prudential indicators for treasury management. Following discussion of the descriptive text in the 21 September draft, specific indicators for treasury management are now proposed in the revised draft. (Paragraphs 19 - 23 of the draft Code).

(b) Ratios. Following the last meeting, several members of the Steering Group have suggested that a ratio of financing costs to net revenue stream should be used rather than a ratio of debt to revenue stream. This has been incorporated in the draft. The text on debt to revenue stream ratios from the 21 September draft is also attached to this report. (Paragraph 12 of the draft Code and attachment I to this report).

(c) Capital commitments. The proposed prudential indicators for estimates of future and for actual financing in the 21 September draft have been refined. The revised indicators relate to capital expenditure unfinanced. This makes the indicators simpler, more generic, and better able to be used in a variety of possible future statutory and financial support systems. (Paragraphs 15 and 18 of the draft Code).

(d) Assurance that over the medium term net borrowing will only be for a capital purpose. This is a key requirement of the draft Code. It was agreed that an exemplification would assist discussion. Table 1 from the earlier paper presented to the PCSG by the LGA on the operation of a control on actual gross debt exemplifies the current situation of a variety of local authorities and is attached to this paper. (Paragraph 33 of the draft Code and attachment II to this report)

(e) External debt - authorised limit in addition to prudential limit. The DTLR has suggested that authorities should set an authorised limit for external debt which must be lower than or equal to their prudential limit. The local authority may wish to authorise, in any particular year, a level of external debt that is lower than their prudential limit. (Paragraph 9 of the draft Code).

(f) Matters to be taken into account when setting or revising prudential indicators. In relation to affordability, the importance of the impact on the Council Tax has been highlighted as a key consideration as agreed at the meeting on 21 September. Matters to be taken into account in relation to external debt have been clarified. (Paragraphs 24 - 33 of the draft Code).

(g) The list of particular issues on which comments are invited that is suggested for the consultation exercise. (At the end of the draft Code.)

RECOMMENDATION

The Prudential Code Steering Group is asked to consider the revised draft of the Code for consultation.

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