Source · Select Committees · Housing, Communities and Local Government Committee
Recommendation 14
14
Paragraph: 70
Commercial investment appears to pose no clear threat to local government financial resilience overall, and...
Conclusion
Commercial investment appears to pose no clear threat to local government financial resilience overall, and where it has contributed to financial instability, the councils concerned must bear ultimate responsibility. We also welcome the Government’s reforms to the PWLB’s lending terms, which are a useful clarification of the purposes for which PWLB loans can be used. In understanding local authorities’ use of commercial investment, we must acknowledge that previous Governments encouraged councils to be more commercial.
Paragraph Reference:
70
Government Response
Acknowledged
HM Government
Acknowledged
Under the current system, primary legislation sets out that local authorities must have regard to the four statutory codes produced by Government and CIPFA, which includes the Prudential Code. Local authorities must appropriately comply with the codes unless there are clear reasons for departure. In response to PAC’s recommendations on LA commercial investments, CIPFA is making changes to its statutory codes to make clearer that authorities must not invest principally for yield. Government has worked closely with CIPFA in developing the amendments. The new codes are in consultation with planned implementation from April 2022. Government’s programme of work will strengthen the capital system and compliance with the Prudential Framework. This reinforces the Government’s message to the sector and sets out clearly the actions Government is taking. The actions take a holistic approach to strengthening the system at multiple points using ‘three lines of control’: 1) detection of risks through scrutiny and transparency, including improving Government’s data for monitoring sector risk; 2) supporting processes at local level over decisions making and risk management by working with partners to improve local capability; and 3) strengthening the Prudential Framework itself. Including tightening legislation on the Minimum Revenue Provision duty and application of the statutory borrowing capping powers.