The CIPFA Prudential Code
About this course
Annotated walk-through of the 2021 Code. The prudential indicators, the affordability tests, the commercial-investment restrictions, and what 'prudent and sustainable' actually means.
What you'll learn
- What the Code is
- The PIs
- Prudence & gross debt
- Affordability
- Service & commercial
- Governance & monitoring
Part of these pathways
Related courses
- The statutory framework
- The CIPFA Treasury Management Code
- The 12 TMPs in detail
- Prudential Indicators in detail
- Investments for service & commercial purposes
- Commercial investment: the cautionary cases
Common questions
What is Authorised Limit?
A statutory PI set by full Council for each of the next 3 financial years. The maximum gross external debt the authority may have at any point in the year — including borrowing and other long-term liabilities. Cannot legally be exceeded; breach must be reported.
What is Capital Financing Requirement (CFR)?
The local authority's underlying need to borrow for capital purposes. Calculated from the Balance Sheet as fixed assets + revaluation reserve adjustments − usable capital receipts − useable capital grants − MRP charged to date. The single most important capital metric in LA finance.
What is Financing costs to net revenue stream ratio?
PI showing financing costs (interest payable + interest receivable + MRP + finance lease charges) as a percentage of net revenue stream. The single best affordability indicator. Estimated for years 1–3 forward, plus actual after year-end.
What is Gross debt vs CFR rule?
Key indicator of prudence. Total gross external debt should not, except in the short term, exceed the previous year's CFR plus estimated additional CFR for the current and next 2 years. Designed to ensure debt is taken only for capital purposes — not for borrowing-to-invest.
What is Investment for commercial purposes?
An investment held primarily for financial return rather than service delivery (e.g. yield-driven property purchase). Restricted by the 2021 Code: authorities <b>must not borrow to invest primarily for financial return</b>. PWLB requires CFO certification that capital plans don't include yield-driven asset purchases.
What is Investment for service purposes?
An investment held primarily to deliver a council service (e.g. an industrial estate to support local economic development). May produce financial return but the primary purpose is service delivery. Permitted under the Code with appropriate disclosure.