Local Government: Loans

Question

Local government loans fall under the Prudential Framework, which governs how authorities borrow and invest. Loans are classed as investments in Government's Statutory Guidance on Local Authority Investments. The guidance, which councils must have regard to, sets out requirements for transparency and how authorities should assess risks before providing loans. Government is currently reviewing all elements of the Prudential Framework to ensure it is fit for purpose, and carefully considering where changes are needed to better constrain risk and support good investment decision-making. Further, recent reforms to the lending terms of the Public Works Loan Board (PWLB), designed to prevent authorities investing primarily for yield, also apply to where the authorities are borrowing to lend. In such cases, the authority is required to report the eventual use of the money and restrictions over investing primarily for yield apply.