Question to the Ministry of Housing, Communities and Local Government:

To ask Her Majesty's Government when a local authority borrows via the Public Works Loan Board to invest in commercial property principally in order to make a margin to help finance expenditure, what rules set out how this should be disclosed in their accounts; and what permissions they require from central government to borrow such money for such an investment.

The Prudential Framework allows local authorities to borrow without Government consent, subject to being satisfied they can afford to service the costs of borrowing through available resources.The decision making process for capital investment and borrowing decisions is devolved to the local authority. Central Government’s responsibility in this area is to set the framework which local authorities operate within.

Whilst local authorities determine their own capital programmes, legislation states that local authorities have to have regard to The Prudential Code which is issued and updated by the Chartered Institute of Public Finance and Accountancy (CIPFA). The prudential framework is designed to ensure that the capital expenditure plans of a local authority, including commercial property investments, are affordable, prudent and sustainable. This will include the setting of a number of prudential indicators relating to affordable borrowing levels which have to be approved by full council every year.

To further support the Prudential Framework, last year we updated The Statutory Guidance on Local Authority Investments. It was updated with the intention of ensuring that local authorities take investment decisions after careful consideration of risk and proportionality, including the potential benefits. The Guidance can be viewed using the link (attached) below:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/678866/Guidance_on_local_government_investments.pdf

When accounting for investments in commercial property, local authorities are required to comply with proper accounting practices, which are updated annually by CIPFA through their Code of Practice on Local Authority Accounting. The Code interprets international financial reporting standards for application by local authorities in a way that is consistent with the specific legislative requirements of the sector.