THE rules on how much and how councils can borrow to support their budgets are changing.
The Prudential Code is a professional code of conduct for councils designed to ensure that their financial plans are affordable and sustainable.
In late 2021, the rules will essentially be tightened to prevent councils from borrowing more than they can afford and to prevent them from borrowing for the sole purpose of making a profit.
The new code encourages councils to borrow to regenerate their communities rather than simply making more money to balance their budgets.
The changes state that “the authorities may no longer or before they need to borrow just to benefit from the investment of the additional loan amounts”.
Concerns about the council’s borrowing to support its budget were previously raised at Trafford.
In 2019, the agency invested Â£ 153 million in taxpayers’ money to buy up properties and lend money to developers.
This and other loans taken out by the council in fiscal 2019-20 mean the council may have to repay Â£ 80million over the next 10 years, with a further Â£ 30million to be repaid in just one year as a loan in 2026 tires.
The Council points out that it makes funds available every year in order to successfully meet these repayment deadlines and to strictly check all loans for their long-term sustainability before they are taken out.
However, the Trafford Council’s approach to borrowing has previously been described as “dubious and worrying” by some opposition councils.
Cllr Julian Newgrosh, Liberal Democrats leader, said: âThe casino borrowing is the result of the chronic Conservative underfunding of the local government.
âIn Trafford, the runaway borrowing began when the Tories were presiding over the council.
âRather than standing up to their counterparts in Westminster over local government funding, the local Tories have simply covered up the cracks with ruthless borrowing.
âThe short-term Tories left local finances in such a state that the returns from these investments are now needed to fill budget gaps.
âLast year the Labor administration, backed by the Conservatives, approved plans that could bring total debt up to Â£ 500 million.
“It is ridiculous that the Conservatives have allowed a situation in which the council has to risk huge sums of money just to make ends meet.”
Cllr Newgrosh added that his party remained “extremely concerned” about the investment strategy and the “risks” involved and welcomed the tightened regulatory credit code.
The Trafford Liberal Democrats have not been on the council’s investment committee since 2019 after Cllr Newgrosh refused to sign the nondisclosure agreement required to attend.
Cllr Nathan Evans, Chairman of Trafford Conservatives, said, âTrafford Conservatives have raised concerns about the council’s borrowing for many years, particularly with respect to loans to buy commercial property.
âThe level of debt that Trafford has is truly staggering and we welcome the proposed strengthened local government oversight code and hope that it will remind Trafford Labor of the pitfalls of extending the council well beyond its financial capabilities, as other high risk councils have done have to the taxpayers of the community. ”
But not everyone is so concerned.
Cllr Geraldine Coggins, Chair of the Greens, who sits on the Council’s Investment Management Board, said: “These changes will not have a major impact on the Council’s investment strategy as it has worked as described – with an emphasis on regeneration – for some time.
âWe believe that the councils should be adequately funded through taxes, which would mean that they do not have to generate any income from investments.
“However, since that is not the case, we are carefully reviewing the administration’s investments and trying to be as careful as possible.”
Trafford Council had borrowed money from the Government Building Loans Fund (PWLB) in recent years, as did many councils across the UK.
But in October 2019, interest rates on these loans more than doubled overnight, from 0.8 percent to 1.8 percent, which, according to council chiefs, wiped Â£ 500,000 from Trafford Council’s coffers within 24 hours.
The government’s rate hike in October 2019 is believed to serve as a deterrent to over-indebted local authorities.
A spokesman for Trafford Council said, âOur asset investment strategy is to ensure we have a balanced portfolio of assets that enables development and renewal.
âSince its development in 2017, the strategy has secured investments in assets that support sustainable regeneration, provide improved infrastructure and have brought social, economic and environmental benefits to the region and the wider region.
âThe investments also generate income that brings the council a financial return.
âWhere this required borrowing to finance the investment, this was always done in accordance with the Prudential Code of CIPFA.
âOur investments have always been made with due care, affordability and proportionality.
“We have closely followed the development of the revised Prudential Code and our work in this area will continue to meet the requirements of the revised Code when it is released later this year.”