Council borrowing through the Public Works Loan Board is to be tightened in the wake of billions being spent on commercial property acquisitions.
The Chartered Institute of Public Finance and Accountancy’s director of local government, Sean Nolan, said at its annual conference that it would “toughen” up the prudential code, and make best practice explicit.
Increased council spending has been welcomed as a way for authorities to supplement income streams and take a leading role in regeneration.
Cheap debt from the PWLB enables this, but there have been concerns about overspending and the levels of expertise guiding deals at some authorities.
Rob Whiteman, chief executive of CIPFA, said that economic development schemes relying on commercial rental streams are not new, but that due diligence needs to be thorough.
“Some could still be taking on disproportionate levels of debt and aggregate levels of risk without adequate due diligence, especially when investing primarily for yield. CIPFA is currently engaged in how the Code may need to change because of this,” he said.
CIPFA, while not a not a statutory government organisation, provides much of the regulation and advice for the public sector.
While borrowing will be put under more scrutiny, it will not dry up.
Alan Harris, partner at Montagu Evans, said that the financial pressure of continuing government cuts means basic services can only be delivered by securing alternative income streams.
“It has been expected for some time now that CIPFA will require best practice to regulate some of the more ‘periphery’ PWLB-funded commercial transactions, and this is welcomed,” he said.
“However, I do see local authorities continuing to be an active player, particularly in secure long-lease investments and those more growth related regeneration initiatives.
“There has definitely has been an increase in local authorities seeking out more formal strategic investment and fund management advice as many councils see stable commercial income as a component of their wider financial planning.”
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