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PRUDENTIAL SYSTEM TO BE LAUNCHED WITHOUT NATIONAL LIMIT

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Local authorities will be free to borrow without a government-imposed national borrowing limit for the year 2004/05...
Local authorities will be free to borrow without a government-imposed national borrowing limit for the year 2004/05.

Local government minister Nick Raynsford said: 'We are satisfied there is no need to impose a national limit on local authorities' borrowing in 2004-05. This means the new prudential system will start operating in the way that we and local government always intended. The prudential system greatly extends authorities' freedom to borrow. This, I believe, will in turn improve services and provide a better quality of life for local communities.'

From 1 April, authorities will be free to borrow for capital projects without government consent, provided that they can afford to service the debt without extra government support. They will decide what is affordable in accordance with the Prudential Code produced by CIPFA, the independent accounting body for local government.

The government has a reserve power to limit borrowing in the national economic interest but has concluded that authorities' prudential borrowing plans for next year do not justify the use of this measure.

Notes

The basic statutory framework of the new prudential system is set out in Part 1 of the Local Government and Housing Act 2003 (available here).

The guidelines on affordable borrowing are in the CIPFA Prudential Code for Capital Finance which can be ordered from CIPFA [The Chartered Institute of Public Finance and Accountancy] online here.

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