An exploratory study of the utilisation of the UK's Prudential Borrowing Framework

This article considers the utilisation of the UK’s Prudential Borrowing Framework (PBF) and the associated Prudential Code for local government capital finance. It finds that the increased flexibility and local freedom are at the cost of less financial certainty in terms of the risks borne by local authorities and local tax payers. The PBF seems to encourage a less formal approach to risk, being considered inevitable and handled if and when adverse risk outcomes occur. Consequently capital projects may lack affordability, sustainability and prudence. The Prudential Indicators required by the Code are not easily understood by non-specialists and their calculation cannot be used to replace sound judgement or to identify the best financing option.