Chapter 2: Other Provision Local government capital finance Section 78: Capital finance risk management Background
These provisions amend the Local Government Act 2003 (the "LGA 2003"). Section 1 of LGA 2003 enables local authorities as defined in section 23 of the Act to raise finance for capital expenditure without Government consent where they can afford to service the debt without Government support. Section 12 of that act provides that a local authority may invest its money for reasons that align with its functions or to manage its financial affairs. Local authorities must determine whether their capital strategies at the local level are affordable, in line with the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003, SI 2003/3146 and having regard to the code of practice entitled the Prudential Code for Capital Finance in Local Authorities (the "Prudential Code").
	Borrowing limits can be set by the Government under section 4 of the LGA 2003. Under section 4(1) these general limits can be placed for "national economic reasons". Under section 4(2), limits can be set where the borrowing is unaffordable. Affordability cannot be demonstrated where local authorities have taken on debt to invest in assets that are currently providing the authority with an income which it can supplement its service delivery with, but which might be presents risk for future financial failure.