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Introduction
Local council borrowing is governed by Schedule 1 to the Local Government Act 2003. Parish and Town Councils in England have to apply and receive approval from the First Secretary of State before taking up any borrowing. Certain temporary borrowings do not require borrowing approval.
Borrowing limit
There is no national limit on the total annual amount of borrowing available to local councils in England and it is hoped that councils will only apply for borrowing approval when they are fully ready to do so. The amount that an individual council will be authorised to borrow will normally be limited to a maximum of £500,000 in any single financial year.
Application
The borrowing should be for a purpose that would be capital expenditure as defined in section 16 of the Local Government Act 2003. The decision to borrow must be taken by the full council, and the date of the decision recorded on the application form. When completed and signed, the original application form should be sent to the local County Association who will check the details and forward it to the DCLG. The formal decision on each application rests solely with the First Secretary of State. Where an application is agreed, a borrowing approval letter will be issued. Where an application is not agreed, the Council will be notified of the reason for that decision.
Borrowing Approval
The borrowing approval will set out a number of conditions that need to be fulfilled and it will specify the maximum amount of borrowing that is authorised, and the maximum term of the loan period, which will be either 50 or 10 years. Approvals are time limited with those issued in the first half of the financial year being valid for six months, and those issued in the second half being valid until the end of the financial year. Extension to the period of time in which the approval may be used may be given.
Borrowing of Funds
The Department has no involvement in where a Council goes to seek funds. In effect, Councils may borrow from any willing lender, in practice, most Councils borrow from the Public Works Loan Board (PWLB) or from a Bank. It should be noted that the PWLB will require sight of the original borrowing approval before processing any application to borrow funds.
Changed circumstances following the issue of borrowing approval
Councils should notify DCLG should their circumstances change, eg. where a borrowing approval is no longer required, or, where borrowing will be delayed due to a delay in the project getting started.
General
Application forms, and a guidance leaflet setting out the details of the borrowing approval system, including the criteria under which applications are assessed, are available from the County Associations affiliated to the National Association of Local Councils (NALC). If County Association details are not readily available, councils should contact NALC Headquarters on 020 7637 1865.
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Last updated on 11 August 2004
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