Clause 5 - Temporary borrowing
Local Government Bill
9:45 am
Mr John Pugh (Southport, Liberal Democrat)
I have a technical query. The Bill's aim is to achieve prudential management. I agree with Aristotle that prudence is difficult to define and circumstantial. As it is defined in the Bill, prudence is setting and keeping to an authorised limit. Conservative Members argued in a previous debate that prudence sometimes consists of keeping clear of that limit because capital programmes can go wrong, mistakes can occur and it is always as well to have something in reserve. However, in temporary and exceptional circumstances it might be prudent to exceed that authorised limit.
All of us, including CIPFA, accept that the Bill's goal is to attain long-term prudence. The amendment seeks a little precision in the authorised limit, which will be a firm, almost mathematical calculation, defined by a relationship between capital and revenue. The revenue base will include what is in the accounts and the money due, and we should consider what that means. Money due is not necessarily what the authority will get, but what it is legally entitled to.
My inquiry relates to the real world of local authority finance. Can money that may, for example, be subject to a negotiable bond be included, as well as
money due that is on the books? In circumstances in which a capital project has failed and a bond is to be negotiated, it will be contested in the court and arrive during the course of the year. Can a local authority reasonably include that as money due? Conversely, if there are contestable legal liabilities in the year, which the treasurer does not think will become due but which might do so, would they be included? I argue that they would not, because in the prevailing circumstances there is a strong element of over-programming, allowance for slippage and so on in local authorities. When financial issues hinge on legal issues that may be debated during the financial year, will the money be included in the money-due or the money-owed category?