Cracking the Code(s of Practice)

Local Authorities will soon be updating their strategy documentation which will need to reflect changes in the CIPFA Prudential and TM Codes

CIPFA updated their treasury management and capital financing Codes of practice - formally the Treasury Management in the Public Services: Code of Practice and Cross-Sectoral Guidance Notes (TM Code) and The Prudential Code for Capital Finance in Local Authorities (Prudential Code) - for local authorities and other public sector bodies in December 2021. Since then, much has been written and spoken about the ‘new Codes’ and local authority treasury officers will be aware there are changes that will need to be included in 2023/24 treasury and capital strategy documents, having been able to delay reflecting these in 2022/23 reports given the timing of the Codes’ publication.

Given the development and writing of the strategies will begin in earnest over the coming months, a brief reminder of some of the key changes may be useful at this point. We see the major areas as being:

Borrowing to Invest

• A local authority must not borrow to invest primarily for financial return
• It is not prudent to make any investment or spending decision that will increase the CFR, and so may lead to new borrowing, unless directly and primarily related to the LA’s functions
• The code does not require existing commercial investments to be sold, but options to exit investments as an alternative to borrowing should be reviewed in the TM strategy

Risk management

• Investment risks should be proportionate to financial capacity – so that plausible losses can be absorbed in budgets or reserves without unmanageable detriment to local services
• Investment counterparty policy to include ESG considerations
• Detailed requirements on knowledge and skills including policy, schedules, monitoring and review

Reporting

• Capital strategy requirements expanded greatly – moving away from being a short summary
• Prudential indicators to be reported to members quarterly – but not necessarily to full council
• New indicators: liability benchmark and income from service and commercial investments

Arlingclose will be assisting clients implement the changes via an updated set of template documentation and support with tailoring these to reflect their own circumstances. If your authority requires any assistance making sure it is fully Code compliant then please get in touch.

Related Insights:

Local Authority Creditworthiness

Tax Borrowing?

Local Authority Counterparty Risk