THE rules on how much and how councils can borrow money to support their budgets are changing.

The Prudential Code is a professional code of practice for councils that aims to make sure their financial plans are affordable and sustainable.

At the end of 2021, the rules will essentially tighten to stop councils borrowing more than they can afford to repay and stop them from borrowing purely to make a profit.

The new code encourages councils to borrow with a focus on regenerating their communities, rather than simply making more cash to balance their budgets.

The changes state ‘authorities must not borrow more than or in advance of their needs purely in order to profit from the investment of the extra sums borrowed’.

In Trafford, concerns have previously been raised about the council’s borrowing levels in order to support its budget.

In 2019, the authority invested £153 million of taxpayers’ money buying up properties and lending cash to property developers.

This and other loans the council took out in the 2019-20 financial year means the council could have to pay back £80 million over the next 10 years, with a further £30 million needing to be repaid in just one year in 2026 as loans mature.

The council indicated it is setting funds aside every year in order to successfully meet these repayment deadlines and rigorously assesses all loans before they are taken out to work out if they are sustainable in the long-term.

Trafford Council’s approach to borrowing has previously been labelled ‘dubious and worrying’ by some opposition councillors, however.

Cllr Julian Newgrosh, Liberal Democrat group leader, said: “Casino borrowing is a result of the Conservatives chronic underfunding of local government.

“In Trafford, runaway borrowing began when the Tories ran the council.

"Rather than standing up to their colleagues in Westminster over local authority funding, local Tories simply papered over the cracks with reckless borrowing.

“The short-term Tories have left local finance in such a state that the returns on these investments are now needed to plug budget gaps.

"Last year the Labour administration – supported by the Conservatives –  approved plans that could see the total debt reach as high as £500 million.

“It is ludicrous that the Conservatives have allowed a situation where the council needs to risk vast sums of money just to make ends meet.”

Cllr Newgrosh added his party remains ‘extremely concerned’ about the investment strategy and the ‘risks’ it involves and welcomes the strengthened prudential borrowing code.

Trafford’s Liberal Democrats have not been represented on the council’s investment board since 2019, after Cllr Newgrosh refused to sign the non-disclosure agreement that was required in order to attend.

Cllr Nathan Evans, leader of Trafford Conservatives, said: “Trafford Conservatives have voiced concern for many years about the council’s level of borrowing, especially in relation to borrowing to purchase commercial properties.

“The level of debt Trafford has is truly eye-watering and we welcome the proposed strengthened local government prudential code and hope it will remind Trafford Labour of the pitfalls of stretching the council far beyond its financial means, as other councils have done at huge risk to their council tax payers.”

But not everyone is as worried.

Cllr Geraldine Coggins, leader of the Green Party group who sits on the council’s investment management board, said: “These changes won’t have much impact on the council’s investment strategy, as it has been working in the way described – with a focus on regeneration – for some time already.

“We believe councils should be properly funded through taxation, which would mean that there is no need for them to raise revenue through investments. 

"However, as this is not the case, we scrutinise the administration’s investments carefully and try to ensure they are as cautious as possible.”

Trafford Council had been borrowing money from the government’s public works loans board (PWLB) fund for the last few years, as many councils have done across the UK.

But in October 2019 the interest rates on those loans more than doubled overnight from 0.8 per cent to 1.8 per cent, which council bosses say effectively wiped £500,000 from Trafford Council’s coffers in 24 hours.

It is understood the interest hike from the government in October 2019 was designed to act as a deterrent against over-borrowing for local authorities.

A spokesperson for Trafford Council said: “Our asset investment strategy is about ensuring we have a balanced portfolio of assets that enable development and regeneration.

“Since it was developed in 2017, the strategy has secured investment in assets which have supported sustainable regeneration, delivered improved infrastructure and provided social, economic and environmental benefits to the area and wider region.

“The investments also produce an income that gives a financial return to the council.

"Where this has required borrowing to finance the investment, this has always been done in accordance with CIPFA’s Prudential Code.

"Our investments have always been made with due regard to prudence, affordability and proportionality.

“We have closely followed the development of the revised Prudential Code and our work in this area will continue to meet the requirements of the revised code when it is published later this year.”