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Tighter prudential rules will not affect housing, says CIPFA
Tighter new rules on the way councils borrow money will not affect town halls’ housebuilding plans now that the Housing Revenue Account (HRA) cap has been removed, the national public accountancy body has said.
The Chartered Institute of Public Finance and Accountancy (CIPFA) announced earlier this month that it will be issuing an updated prudential code before the end of the year.
It comes amid fears about councils taking on risky investments in commercial property as they seek new sources of income following government cuts.
Spelthorne Borough Council, for instance, has borrowed around £1bn from the Public Works Loan Board to fund commercial property purchases.
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The prudential code, developed by CIPFA, is the standard that councils are expected to adhere to when taking on fresh debt – including through their HRAs.
This week a long-standing cap on HRA borrowing was abolished, with some councils now expected to scale up their development plans significantly.
However, CIPFA has insisted that this ambition will not be curtailed by tighter new prudential rules.
Don Peebles, head of policy and technical UK and international at CIPFA, told Inside Housing that the body views borrowing for housing as “different” to commercial investments.
“Prudence involves authorities ensuring they do not take on an inappropriate amount of risk when exercising their borrowing and investment powers, and not put at risk their primary function – which is the delivery of local services to the local population,” he said.
“Residential housing has a number of other benefits to an area beyond being purely commercial investments, and sits more squarely with a councils primary duties to serve their community.”
“It has been an unfortunate irony that councils can borrow for commercial investment purposes outside their own boundaries, but cannot borrow to build much needed homes within their areas, and the HRA cap has been an unhelpful constraint.
“Housing has been the biggest government policy failure for over 30 years, significantly contributing to social discord and a breakdown in public trust.”
