Councils will get advice on how to calculate whether their property investments are proportionate or not under new CIPFA guidance on property investment to be released later this month.
Last year, CIPFA promised the guidance, prompted by the failure of the government’s revised investment code, to curb some instances of councils borrowing to invest in commercial property.
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March 25th, 2020, Manchester
Council treasury investment & borrowing
This week, speaking to a CIPFA treasury management conference, Don Peebles, the institute’s policy and technical head, said that the guidance would not take a rigid line on what proportionality means in the context of property investment.
He said: “Last week, I spoke to a group of members who asked ‘will you actually be guiding or prescribing on what proportionality means?’
“However, that is not the case. That’s completely outwith the spirit of the prudential framework.”
Peebles said that to be prescriptive would be moving back to the days before the framework was introduced, where councils had far less room for movement due to central restrictions.
He hinted that the new guidance would ask councils to look at the extent to which their budget relies on income generated for property as one measure of proportionality.
In addition, he said that councils should look at the balance between their financial and non-financial investments as another main measure.
The guidance will provide a template methodology to assist councils to help with their calculations relating to proportionality, he said.
He said: “For those who want something formal – the trainspotters out there – we will have a scientific methodology for you to think what proportionality looks like.
“However, it is not prescriptive and you don’t have to follow this.”
Peebles said the new guidance would help section 151 officers resist pressure from local authority members to undertake property investments purely to generate revenue.
The new guidance will also provide finance officers with a flow chart helping them decide whether it is appropriate to borrow to invest in property, Peebles said.
The guidance will be released before the end of the month, Peebles added.
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