Prudential borrowing becomes a way of life

Friday, January 12, 2007

Around 46 per cent of local authorities in debt intend to use prudential borrowing in 2006-07, according to a new publication from the Local Government Association.

'Funding innovation: local authority use of prudential borrowing' has also revealed that the use of prudential borrowing has increased by over 180 per cent since it was introduced in 2004-05, with £6.13bn borrowed so far to help councils meet the challenges they face.

The Greater London Authority is the largest single user of prudential borrowing, planning to use £677m in 2006-07, mainly for Transport for London investment.

Some local authorities are using prudential borrowing to support their overall capital expenditure rather than for specific projects. With increasing pressure on services, particularly with an ageing population and more households as the housebuilding programme continues, councils may be tempted to use the money they borrow to maintain service levels, the LGA suggested.

It also pointed out that with a higher efficiency target for local government of at least three per cent a year, with a focus on cashable savings, this could affect borrowing repayments and put councils off borrowing. However, if councils are to make long term efficiency gains many will have to turn to large scale projects which could require an 'invest to save' approach to transform services and reduce the size of the back office. Prudential borrowing could have a role to play in helping deliver such projects. Prudential borrowing is also used to provide the investment needed for waste collection and disposal.

And with resources not available from central government, some councils are using prudential borrowing to build 'one stop shops' and to fund technology to help create a more joined up way of working. For example, Nottingham City Council has developed a corporate contact centre designed around the needs of customers, which needed to use prudential borrowing to meet the cost of this service transformation.

Pressures in such areas as decent homes and extended schools are also forcing authorities to use prudential borrowing where central government funding is insufficient. For example, Harrow has used it to help meet the decent homes standards. The money has allowed the council to deal with maintenance backlogs and meet the standards within a shorter time period.

Also, better procurement can be realised, as Horsham has shown through a project with the PCT. By using prudential borrowing, the council has been able to buy a site and an old building which can be developed to provide modern health facilities for a rural community.

Pressures to keep council tax increases below five per cent have meant that some local authorities have not had sufficient funds to meet all their service needs, the LGA document said. Also, councils have had to deliver 2.5 per cent efficiency gains across the 2004-2007 spending period and prudential borrowing has been used to supplement capital projects and allow local authorities to focus on outcomes rather than have concerns over inputs.

The precentage of authorities using prudential borrowing in 2006-07 and the average borrowing per type of authority are as follows:

London boroughs 75 per cent; £14m
Unitary authorities 82 per cent; £6.8m
County councils 94 per cent; £20.4m
Metropolitan districts 97 per cent; £14m
Districts 29 per cent; £1.5m