The UK's Prudential borrowing framework: a retrograde step in managing risk?

John Hood, Darinka Asenova, Stephen J. Bailey, Melina Manochin

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Abstract

The contemporary understanding of public sector risk management entails a broadening of the traditional bureaucratic approach to risk beyond the boundaries of purely financial risks. However, evidence suggests that in reality public sector risk management does not always match the rhetoric. This paper focuses on the apparent inadequacy of any risk framework in the current Prudential Borrowing Framework (PBF) guidance in relation to that which was developed under Public Private Partnerships and Private Finance Initiative (PFI). Our analysis shows that the PBF and its associated indicators for local authorities adopt a narrow financial approach and fail to account for the full range of potential risks associated with capital projects. The PBF does not provide a framework for local authorities to consider long-term risk and fails to encourage understanding of the generic nature of risk. The introduction of the PBF appears to represent a retrograde step from PPP/PFI as regards risk and risk management.

Original languageEnglish
JournalJournal of Risk Research
DOIs
Publication statusPublished - 1 Jan 2007

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Keywords

  • Prudential borrowing framework (PBF)
  • public sector risk management
  • public private partnerships

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