CIPFA to strengthen Prudential and Treasury Management codes

The consultations follow previous reviews of their provisions amid ongoing concerns over local authority commercial investments

CIPFA has released two consultations to help strengthen the Prudential and Treasury Management codes.

The consultations follow previous reviews of its provisions amid ongoing concerns over local authority commercial investments.

The Prudential Code ensures that capital finance decisions are “prudent and sustainable”, whilst the Treasury Management Code provides a framework for “effective, risk-managed” treasury management in public sector organisations.

According to CIPFA, the consultations will strengthen measures for defining proportionate commercial investment in the context of local authority regeneration. 

Separate guidance is available as an annex to the code, which details CIPFA’s policy stance on why borrowing for investment return, or debt for yield, is considered an “imprudent activity that puts public money at undue risk”.

The proposed revisions will also strengthen both codes with a greater focus on climate and ESG risks when making financial decisions.

Richard Lloyd-Bithell, senior technical manager at CIPFA, said: “The key changes being brought forward in these consultations, especially those in the Prudential Code, clarify and update CIPFA’s position on local authority commercial investment. 

“The revised code will emphasise that any borrowing made solely for the purpose of financial return constitutes imprudent activity, while also taking into account the realities that accompany regeneration activities.”

He added: “Over 100 participants responded to the Prudential Code consultation earlier this year to offer feedback on revisions to the codes, and it is vital that the sector engages to the same degree with these consultations.”

Alongside the latest consultations, CIPFA is also releasing free liability benchmark guidance and a new reporting toolkit. The Liability Benchmark Implementation Service will reportedly enable local authorities to create their own free liability benchmark.

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