| Feature | Leasing World |
| Evolution of the Prudential Borrowing Code | ||
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Geoff Kontzle argues that the industry needs to overcome negative feeling towards leasing and that it has a good product and story to deliver |
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The biggest news to hit Local Government Finance arrived on 1 April
2004 in the form of the Prudential Borrowing Code. This arrival was
heralded as a major change in the world of local government as it was to replace
a system that had been in place for some 100 years, where local authorities
required government permission to borrow under a credit approval system.
From a leasing and asset finance perspective, the previous system
enabled local authorities to fund capital expenditure and acquire
assets by utilising operating leases, which were exempt from being
classified as a credit agreement, where restrictions were in place.
In practice this meant that finance leases up to the value of
£10,000 – known as a “de-minimis” lease value – were viewed as
borrowing and therefore restricted in their use, whilst operating
leases were not. As a result most local authorities, including police
and fire authorities, chose to use the latter.It would be fair to say that many of us in the leasing industry felt that the arrival of the Prudential Borrowing Code would provide our industry with a platform to grow and develop, |
especially after demonstrating the benefits of using asset finance
facilities for the previous 15 years. The Local Government and
Housing Act of 1989 authorised the formal use of leasing.
However, from April 2004, many local authorities had other
ideas. Was this shift away from leasing down to?: Or was it just a general desire by local authorities to take control, following the problems that emerged in 1999, when the leasing industry serving the market largely “stood on its own two feet”? At the time, issues raised by a number of local authorities led to an investigation by the Serious Fraud Office into the methods of a broker who was providing a leasing intermediary service. Whilst the investigation fizzled out, it did create doubt and uncertainty in the minds of many local government officials. Since then our industry has worked diligently to alleviate those concerns, and lessors, lease advisers and, in particular, the Finance & Leasing Association have delivered much to assist. The FLA Business Finance Code with specific focus on Local Government is a good example. There is no one answer which explains why many of the |
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