From the Private Finance Initiative to the new Prudential Borrowing Framework: A Critical Accounting Perspective

The governance and accountability arrangements for local government capital expenditures under the new Prudential Borrowing Framework (PBF) appear to adopt a much narrower set of evaluative and precautionary criteria than those of Public Private Partnerships and the Private Finance Initiative. The PBF seems to have been developed in complete ignorance of the critical accounting perspective and the valuable insights it proffers for overseeing public spending. This paper makes clear the need for a return to a more holistic and multidisciplinary approach to governance and accountability for capital expenditures based upon involvement of all relevant stakeholder groups, including the non-professional community. Introduction Over the last decade or so, UK central and territorial governments have increasingly used Public-Private Partnerships (PPPs) and the Private Finance Initiative (PFI) to finance public sector capital projects and associated services, being frequently referred to as “the only game in town” (TTF, 1997; HM Treasury, 1999, HM Treasury, 2000). However, the Local Government Act 2003 (and its equivalent in Scotland) introduced the new Prudential Borrowing Framework (PBF), granting local authorities a potentially significant degree of freedom and flexibility for their capital expenditures. Local authorities can now decide for themselves whether and at what levels they borrow money for financing any purpose relevant to their functions provided that they meet requirements for prudent management of their financial affairs. At a conceptual level, the PBF marks a profound shift of capital finance decision-making responsibility from central to local government. The significance of this step should be considered against two key considerations: firstly, the still existing backlog of investment in many public services and secondly, the traditional financial arrangements where most of the revenues of local authorities come from central government.