Draft Combined Authorities (Borrowing) Regulations 2022

Grahame Morris Excerpts

Wednesday 9th March 2022 General Committees

[Stuart Andrew]

I thank members of the Committee for their contributions. They are right to raise those questions. We have seen examples where things have gone terribly wrong and, of course, it is people’s money that is put at risk. Hon. Members have asked me specific questions. With respect, I will write to them with more detail and will now outline how the prudential borrowing process works.

Combined authorities are subject to the regime provided for in the 2003 Act, just as local authorities are. The underlying principle of the regime is that authorities can raise finance for capital expenditure when they can afford to service the debt without Government support. The key feature of prudential borrowing is that authorities are under a broad duty to determine and keep under review the amount that they can afford to borrow.

Regulations further specify that authorities must have regard to the practical rules for deciding whether borrowing is affordable, as laid down by the “Prudential Code for Capital Finance in Local Authorities” issued by the Chartered Institute of Public Finance and Accountancy. Each authority sets its own prudential limit in accordance with the rules, subject to the scrutiny of external auditors. Authorities are required to balance their revenue budgets and not finance long-term revenue expenditure by borrowing. The Government are aware that some local authorities have taken excessive risk with taxpayers’ funds by investing primarily for profit, and pursuing novel and risky investments.

On 28 July 2021, the Government published the policy paper “Local authority capital finance framework: planned improvements”, which set out our plans to strengthen the capital system to prevent excessive risk.

[Grahame Morris (Easington) (Lab)]

I am listening carefully to the Minister’s explanation and his answers to various Members. I appreciate that the regulations are limited in scope to areas in England that have an elected Mayor, but will he elucidate in relation to investments? The hon. Member for South Norfolk mentioned a golf course, but in my experience most local authorities have been selling off assets. When I was a member of the local authority, we had a huge caravan park, which we were compelled to sell off. I am aware that Mayor Ben Houchen bought an airport that is losing considerable sums of money. The Minister is saying that it is down to the elected Mayor and the combined authority to determine what is prudential and what is in the public interest, so would the measures cover such cases?

[Stuart Andrew]

I will speak to the Under-Secretary of State for Levelling Up, Housing and Communities, my hon. Friend the Member for Harborough (Neil O’Brien) —the Minister responsible for this area—to highlight the point made by the hon. Member for Easington. My understanding is that such matters are subject to external auditors, but I will happily give him a more detailed answer in writing.

Question put and agreed to.