LGA and CIPFA urge Chancellor not to ditch prudential borrowing

The Local Government Association and the Chartered Institute of Public Finance and Accountancy have fired a warning to Chancellor George Osborne that reform of prudential borrowing rules would be a “false economy”.

In a statement released ahead of the Comprehensive Spending Review today, the two organisations said that limiting the power of councils would drive up the cost of vital road and building projects.

In a report they argued that rules which allow councils to borrow prudently against their assets have driven down costs by allowing town halls to replace costly leasing deals.

Local authorities were handed the freedom to borrow against their assets in 2004. The LGA and CIPFA said that council borrowing had been “modest and focussed on delivering savings or improving services to give better value for money”. Since 2004, councils have borrowed the equivalent of no more than 4.5% of their total assets.

This borrowing is governed by the Prudential Code, which is designed to ensure that borrowing is affordable and pays for major projects and initiatives.

John Ransford, chief executive of the Local Government Association, said: “We know the government wants to cut the deficit, but prudent borrowing by councils is a proven way of saving money.

“Town halls are careful to borrow money only when there is a rock-solid case that it is prudent and affordable. Ministers want the public sector to use their purchasing power and get the best value for every pound. These powers give councils the ability to do just that.”

CIPFA Chief Executive Steve Freer said the Code had worked very well for councils over the last six years. “It is important that the government retain the full flexibilities of these arrangements in the upcoming Comprehensive Spending Review,” he added.