Local government finance is, at times, obscure, even to those within the sector. Yet, it has perhaps the greatest influence on the vibrancy and strength of local government.
While the future of council tax and non domestic rates has been making headline news, elsewhere, a quiet revolution has been taking place.
The introduction of the CIPFA Prudential code for capital finance represented the most significant increase in local authority freedoms and self-determination in decades.
While by no means a panacea for years of underinvestment in assets, it is helping boost investment in a wide range of services that would have previously been impossible.
In 2005-06 an additional £2.3bn was invested as a result of the additional freedom to borrow. Of this amount, one-third was spent by Transport for London on its major refurbishment projects, and by Birmingham City Council on the refinancing of the NEC. Outside of these major projects, the bulk of investment was on ‘spend-to-save’ and income-generating schemes.
The success of the code, however, should not only be measured in terms of increased investment, but by its encouragement of better financial management and resource planning by local authorities.
Those authorities which have best exploited the full benefits available from the freedoms offered under the code have fully integrated its application into their corporate planning processes.
Four years on from the code’s inception, CIPFA is commencing a review to ensure that the only constraint to sound investment decisions is continuing pressure on resources and that improved financial decision making is being supported.
Alison Scott is a technical manager at the Chartered Institute of Public Finance and Accountancy
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