Open consultation

Capital risk metrics implementation and mitigation measures

Published 28 May 2026

Applies to England

This consultation seeks views on the capital risk metric calculations and implementation for use in the sector. It covers the following areas:

• metrics calculations  
• threshold methodology 
• process following risk identification and implementation plan  

Scope of this consultation

We want to understand any unintended consequences, difficulties, and additional considerations regarding our suggested methodologies.

Additionally, we have developed a series of responses to metrics being triggered alongside a potential timeframe for implementation. The response is intended to be proportionate to the level of risk identified, taking the necessary supportive measures to help steward away from financial failure.

The consultation will be used to collect views, and the evidence will be carefully considered in deriving the final metrics calculations that will underpin powers set out in the Local Government Act 2003, sections 12A to 12D. Alongside this consultation, the government will collect evidence from the sector through other forms of engagement and stakeholders will be made aware of this in due course.   

 Geographical scope

These proposals relate to England only. 

Impact assessment

The proposed policy changes are not within the scope of the Reducing Regulation Committee and so do not need an Impact Assessment for this purpose. 

Body responsible for the consultation: 

Ministry of Housing Communities and Local Government  

Duration 

This consultation will last for 10 weeks from 28 May to 6 August 2026. 

Enquiries

For any enquiries about the consultation please contact: la.financialcontrolframework@communities.gov.uk

How to respond

You may respond by completing the online survey.

Alternatively you can email your response to the questions in this consultation to: la.financialcontrolframework@communities.gov.uk

If you are responding by email, please make it clear which questions you are responding to.  

When you reply it would be very useful if you confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include:  

• your name
• your position (if applicable)
• the name of organisation (if applicable)
• an address (including post-code)
• an email address
• a contact telephone number

Summary

The Ministry of Housing, Communities and Local Government (“the Department”) has policy responsibility for the Prudential Framework (“the Framework”), under which local authorities borrow and invest, and stewardship responsibility for ensuring that it operates effectively. The Framework is intended to ensure that borrowing and investment decisions are prudent, sustainable and affordable, while giving authorities the freedom to determine their own capital strategies to meet local priorities. The government monitors risks across the sector and keeps the Framework under review to ensure that it remains fit for purpose.

The Framework comprises primary legislation, with which local authorities must comply, and statutory codes, which they are required to have regard to. It provides authorities with broad freedoms to borrow and invest without the need for specific government consent, reflecting the principle that locally elected authorities are best placed to assess local needs, determine local priorities and manage their own finances. In exercising those powers, authorities must determine and keep under review an affordable borrowing limit, which must not be exceeded.

Since its introduction in 2004, the Framework has generally operated as intended. However, from around 2016 there was a marked increase in borrowing across the sector with total borrowing by English principal authorities rising from £60.4 billion to £83 billion by the end of 2019/20, an increase of more than £22 billion, compared with an increase of only £1.7 billion between 2011/12 and 2015/16. Much of the increase in borrowing has been driven by a small number of authorities taking on excessive debt to finance novel and risky investments, in some cases where the primary objective was to earn commercial income. Risks were allowed to build to levels that were inconsistent with the core principles of the Framework.

In recent years, a small but significant number of authorities have experienced severe financial failure because of historic decisions that left those authorities with unsustainable debt, far in excess of the value of the assets it was used to finance. This has necessitated government intervention and unprecedented levels of support to move back to sustainability. Evidence from these failures demonstrates a range of problematic practices, including pursuit of novel or complex strategies outside the authority’s core expertise, disproportionate levels of debt (including for non-commercial activity), over-reliance on commercial income to support revenue budgets, and weaknesses in local governance, scrutiny and risk management. 

The government recognises the importance of local investment and borrowing in supporting housing supply, infrastructure and local growth, and the benefits of local decision making enabled by the Framework. Equally, for the Framework to be able to function effectively there must be effective safeguards to address legacy risks and prevent new risks accumulating in the system. Poor capital decisions have lasting and pervasive consequences, as debt incurred in earlier years may remain on authorities’ balance sheets for decades, and weaknesses in financing structures or investment assumptions can continue to create significant pressures long after the original decisions were taken.

The government’s objective is to preserve the flexibility that responsible authorities need to invest in their areas, while ensuring that the system is sufficiently robust to detect, mitigate and, where necessary, intervene in relation to excessive risk, particularly where investments do not support local or national priorities such as housebuilding. In this way, the Framework can continue to provide authorities with the flexibility they need to invest in their areas, while protecting the long-term stability of the local government finance system and avoid the need for more fundamental reform of the capital system.

To support this objective, the government intends to take forward the statutory capital risk powers introduced by the Levelling-up and Regeneration Act 2023 (“the 2023 Act”). These provisions amended the 2003 Act to expand the government’s powers to address excessive risk in local authority borrowing and investment, enabling the Secretary of State to issue directions to individual authorities where such risk is identified. The legislation requires any direction to be appropriate and proportionate to the level of financial risk. While the powers enable intervention, their use is discretionary and targeted.

The powers can only be exercised where a trigger event occurs. A trigger event arises where an authority is financially unsustainable, indicated by the issuance of a report under section 114(3) of the Local Government Finance Act 1988 (‘section 114 notice’), or the need for government support to avoid such a report, or where an authority breaches a risk threshold in relation to one of the 4 capital risk metrics specified in section 12B of the 2003 Act. For example, the first metric relates to whether an authority is excessively leveraged. 

While the risk metrics themselves are set out in primary legislation, the method for calculating the relevant numerical thresholds must be specified in secondary legislation. The government is committed to engaging with local authorities and the wider sector in developing those calculation methods and the associated regulations.

This consultation therefore seeks views from local authorities, sector bodies and other stakeholders on the proposed approach to calculating and applying the capital risk metrics. To support the proportionate, fair and consistent use of the powers in line with the legislative framework, the government is also seeking views on the proposed framework for how the capital powers will operate in practice.

Capital powers and risk metrics

In 2023, new powers (“the capital powers”) were introduced in primary legislation. Specifically sections 12A-12D were added to Part 1 of the 2003 Act, referred to as the “Risk Management” provisions. These apply to England only. These measures provide a flexible range of interventions for the government to investigate and remediate excessive risk, that relate to a local authority’s investment and borrowing practices. 

The Risk Management provisions create a statutory framework that allows central government to intervene in exceptional cases where a local authority’s borrowing or investment activity gives rise to excessive financial risk. In broad terms, the legislation gives the government a power to issue risk-mitigation directions to an individual authority, but only where specified statutory conditions are met and only for the purpose of reducing or mitigating the authority’s financial risk. The legislation defines “financial risk” as the risk that an authority’s expenditure, whether current or proposed, is likely to exceed the resources available to meet it i.e. where an authority is financially unsustainable.  

Authorities only fall in scope of the powers through a trigger event. There are 2 routes into the regime. The first is where an authority has become, or is effectively at the point of becoming, financially unsustainable, indicated by the issue of a section 114(3) report or a case where government support is needed to avoid such a report. The second route, is where the authority breaches a risk threshold set for one of the statutory capital risk metrics. Those metrics are intended to identify authorities whose capital strategy or financing structure may be exposing them to excessive risk before outright failure occurs.

The risk metrics set out in section 12B of the 2003 Act are:

• the total of a local authority’s debt (including credit arrangements) as compared to the financial resources at the disposal of the authority

• the proportion of the total of a local authority’s capital assets which is investments made, or held, wholly or mainly in order to generate financial return

• the proportion of the total of a local authority’s debt (including credit arrangements) in relation to which the counterparty is not central government or a local authority

• the amount of minimum revenue provision charged by a local authority to a revenue account for a financial year

Where a trigger event has occurred, section 12A allows the government to give one or more risk-mitigation directions, but only where it is satisfied that the direction is appropriate and proportionate to the level of financial risk. The legislation is deliberately flexible. A direction may, for example, impose limits on borrowing, require the authority to take specified action, or require steps to divest a specified asset. Before deciding whether to intervene, the government must have regard to the likely impact on service provision and to the authority’s best value duty and may also take account of wider effects on central government policy, projects or programmes. 

The legislation also builds in safeguards and a process for oversight. Under section 12D, where a trigger event has occurred and the government appoints an independent expert to review the level of financial risk, the authority must, so far as reasonably practicable, cooperate in whatever way the expert considers necessary or expedient for the review. Section 12C then provides an exit mechanism: once at least 12 months have passed since the Secretary of State last became aware of a trigger event, any directions have been complied with or revoked, and no further direction is likely to be needed in the foreseeable future, the government must issue a cessation notice. After that, the power to direct can no longer be exercised on the basis of trigger events already known at that time. Taken together, these provisions are intended to provide an early-warning and intervention framework for exceptional cases, while also ensuring that the intervention power is not open-ended.

Scope of the consultation

The capital risk metrics themselves are set out in primary legislation. However, Parliament deliberately left the detailed methodology for calculating those metrics and the thresholds that apply to them to be determined in secondary legislation.

The government considers it important to work with the sector and other stakeholders to ensure that the powers operate effectively, achieve their intended objectives and avoid unintended consequences.

This consultation therefore seeks views on:

• the proposed calculation of each metric, including approaches for different classes or groups of authorities and the data to be used;
• the proposed methodology for determining the threshold for each metric
• the proposed operational principles for the use of the powers.

Evidence gathered through this consultation will be carefully considered in determining the final metric calculations to be set out in regulations. Alongside this consultation, the government will also collect evidence from the sector through other forms of engagement, and stakeholders will be informed of these arrangements in due course.

Other matters for consideration

At this stage, the government intends to apply the capital powers only to principal authorities and combined authorities, as defined as local authorities in section 33(a)–(g) and (jc)–(jd) of the 2003 Act. This excludes, for example, fire and rescue authorities, waste authorities, police and crime commissioners, and mayoral development corporations (where these are defined as “local authorities” and would otherwise fall within the scope of the provisions). This decision has been taken to target multifunctional bodies which are democratically accountable to manage long term investment risk.

The risk metric calculations should meet all 4 of the following principles:

• Appropriate: the calculations should be such that they identify those authorities that are at greater risk from their capital activities
• Sufficient: the calculations should be such that the majority of authorities with excessive risk are expected to be identified
• Readily calculable: the calculations should be based on data that is robust, accessible for analysis and produced on a consistent basis as part of existing finance data reporting
• Understandable and transparent: the calculations should be transparent and understandable with respect to how the metrics are calculated

To meet the objectives the metrics will use data captured through the existing sector data returns, and use definitions consistent with the statutory codes, the Code of Practice on Local Authority Accounting or Service Reporting Code of Practice for Local Authorities (“SeRCOP”).

Risk metrics

This section sets out the proposed calculations for each risk metric, the rationale and the proposed source of data to be used. Please note, that this section does not consider grouping of authorities for comparison purposes, this is considered in the section on risk thresholds.

The calculations for each risk metric must represent the metric as set out in the legislation but may use proxy data where appropriate, provided this produces a value that reflects the purpose of the metric.

Unless otherwise specified, all metric calculations are based on an authority’s financial position as at 31 March of the relevant financial year together with the financial transactions for that year. For example, when comparing Capital Financing Requirement (CFR) with Total Service Expenditure (TSE) for 2025/26, the CFR position as at 31 March 2026 would be compared with TSE reported for the 2025/26 financial year.

Risk metric 1

The total of a local authority’s debt (including credit arrangements) as compared to the financial resources at the disposal of the authority  

The purpose of this metric is to identify authorities that carry a disproportionate level of debt relative to their financial size and available resources.  

Where local authorities have experienced severe financial failure due to borrowing practices, requiring government intervention and financial support, a clear driver of failure has been the accumulation of excessive debt beyond the authority’s means to repay or service when risks materialise. 

The following metric is proposed: 

Capital Financing Requirement as a proportion of Total Service Expenditure .  

Capital Finance Requirement (CFR) is taken as the most appropriate measure of debt, as it is the sum of borrowing and other types of debt. It is divided by Total Service Expenditure (TSE) as a measure of an authority’s financial size and a measure of the financial resources available to an authority. The value for the CFR will be taken from the Capital Outturn Return, and the value for TSE from the Revenue Outturn.  

An alternative to TSE would be Core Spending Power, which arguably is a more direct measure of ‘financial resources at the disposal of the authority’. However, evidence suggests that Core Spending Power is not widely used by authorities themselves as a measure for financial management. As authorities must meet expenditure on a sustainable basis through income as part of the balanced budget requirement, TSE is proposed as an effective measure of an authority’s size and financial resources.  

Questions 

Question 1

Considering the objectives set out in this document, and the principles set out, do you agree that the proposed calculation should be the basis for this metric?

• yes
• partially
• no
• don’t know/not applicable

Please explain.

Question 2 

Is there an alternative calculation/s you think is more appropriate?

• yes
• partially
• no
• don’t know/not applicable

Please explain. 

Risk metric 2

The proportion of the total of a local authority’s capital assets which is investments made, or held, wholly or mainly in order to generate financial return.

This metric is intended to identify authorities exposed to heightened risk through capital expenditure undertaken mainly or solely to generate financial returns, rather than to support service delivery or policy priorities such as housing, regeneration or net zero. While authorities may legitimately invest in these areas and generate income, including where profit is an objective, the metric focuses on identifying outlier practices where investment activity is primarily driven by yield and creates excessive risk to financial sustainability.

Since November 2020, Public Works Loan Board (PWLB) lending terms and the revised Prudential Code have restricted borrowing and investment primarily for yield, helping to curb such practices, but they do not address risks arising from historic investment decisions or from assets that evolve over time into profit-focused holdings. Authorities may also face risk where they are reliant on investment income to support service delivery, regardless of their overall debt levels. Underperformance or failure of income-generating investments can directly impact local services, and this risk applies across asset types, not solely commercial property.

For some local authorities which have experienced severe financial failure requiring government intervention and support, there is clear evidence that strategies to pursue investments for income have contributed to an unsustainable position.

The following metric is proposed:

Investment income as a proportion of Total Service Expenditure (TSE).

All data is sourced from the revenue outturn publication. TSE is proposed as the measure of a local authority’s size, consistent with Metric 1. The purpose in this case is to take into account an authority’s size recognising that larger authorities may have greater commercial investments compared to smaller authorities, but may not be at greater risk as they also have greater resources at their disposal.

Investment income refers to non-treasury investment income. This is a line item in the general fund revenue account outturn since 2021/22 (line 821 as described in the guidance). This is income generated through investment properties and financial investments. We propose using this for the metric as the government does not collect data on the value of financial and non-financial assets held by local authorities, and ‘assets held for financial return’ is not a recognised asset class within local authority accounting. Investment income is, however, reported in the Revenue Outturn Returns and we consider it a reasonable assumption that investment income will correlate positively with the extent to which an authority has invested in income generating assets.

We recognise the limitation that poorly performing investments may generate low returns, but equally the value of these assets may be impaired. This calculation is proposed as the best available, reasonable means to assess this metric.

Questions 

Question 3

Considering the objectives set out in this document, and the principles set out, do you agree that the proposed calculation should be the basis for this metric?

• yes
• partially
• no
• don’t know/not applicable

Please explain. 

Question 4

Is there an alternative calculation/s you think is more appropriate?

• yes
• partially
• no
• don’t know/not applicable

Please explain.

Risk metric 3

The proportion of the total of a local authority’s debt (including credit arrangements) in relation to which the counterparty is not central government or a local authority.

The purpose of this metric is to consider risk that may arise due to the source and nature of debt. Risk metrics 1 and 2 are concerned with the level of debt relative to size and dependency on commercial income respectively. However, risk can also arise due to the nature of debt. 

Concerns over this were expressed in the Public Accounts Committee (PAC) report ‘Local authority investment in commercial property’, with respect to novel arrangements such as income strips. Local authority borrowing is not limited to conventional loans, and the Prudential Framework specifically includes credit arrangements (including securitisation). Excessive risk can be present where authorities are borrowing a prudent amount, but imprudently incurring credit liabilities. It is also possible that excessive risk could be a result of the source and terms of borrowing.

This metric therefore considers the extent and cost of counterparty debt, including credit arrangements, in determining risk. This is not to say that all non-government debt is risky; for some non-government debt, institutions may put local authorities through greater scrutiny to assess risk than the PWLB would. Nevertheless, risk may arise from nature of the debt itself and it is therefore considered appropriate to have a method of calculation that reflects this risk. It is important that the Framework is able to respond to the various and complex arrangements for debt/borrowing should risks emerge in the system.

The following metric is proposed:

Non-government debt as a proportion of total borrowing. 

The calculation uses total external borrowing (gross borrowing + other long-term liabilities), less borrowing from PWLB + central government + local government (figures are taken from the quarterly borrowing and investing live tables) and divided by total borrowing. 

Gross external debt figures are taken from the annual capital returns, while central and local borrowing is taken from the quarterly borrowing and investment returns. Gross external debt figures are used, rather than CFR, as it is external debt that this metric is concerned with. 

Most local authority borrowing is from the PWLB (over 70% as at 31 December 2025). The metric is not to imply that all non-government debt is risky, but identifying those authorities where an unusually high proportion of debt is not from government should identify where it is probable that an authority is using less typical forms of debt-financing. In applying the metric, the government may also consider the absolute level of non-government borrowing, recognising that relatively high proportions may arise in cases where overall borrowing is small and does not present material financial risk.

Questions 

Question 5

Considering the objectives set out in this document, and the principles set out, do you agree that the proposed calculation should be the basis for this metric?

• yes
• partially
• no
• don’t know/not applicable

Please explain.

Question 6

Is there an alternative calculation/s you think is more appropriate?

• yes
• partially
• no
• don’t know/not applicable

Please explain.

Risk metric 4

The amount of minimum revenue provision charged by a local authority to a revenue account for a financial year. 

Local authorities are required under the Capital Finance and Accounting Regulations 2003 to make a prudent annual Minimum Revenue Provision (MRP) charge to revenue in respect of outstanding debt, setting aside resources for future repayment. While legislation does not define what constitutes a ‘prudent’ amount, authorities must have regard to the government’s statutory MRP guidance, which allows some flexibility but requires that any approach adopted remains prudent. The relevant regulations and guidance were updated by the Department in 2024 in response to some local authorities employing practices to underpay MRP, such as using proceeds from asset sales to replace the revenue charge or not making MRP on debt associated with investments.

Under-charging of MRP creates significant risk by deferring debt repayment, increasing future liabilities, and potentially enabling authorities to take on unaffordable levels of borrowing. Where local authorities have experienced financial failure requiring government intervention and support, a common theme is that MRP has been underpaid allowing the authorities to take on more debt than they could otherwise afford were they to make adequate provision to repay that debt. Considering these issues, this metric is intended to identify authorities where MRP provision may be insufficient and does not provide a prudent reflection of their debt repayment obligations.

The following metric is proposed:

Ratio of General Fund CFR to statutory minimum revenue provision

The proposed calculation is to divide CFR (excluding Housing Revenue Account “HRA” CFR) by the statutory MRP charged for the financial year. Values to be taken from the Capital Outturn Return. This calculation approximates how many years it would take an authority to reduce its General Fund CFR to zero based on the MRP charged for the given financial year. Voluntary MRP is excluded on the basis that this is discretionary and cannot be relied upon to ensure debt is repayable. The Government does not collect data on MRP relating to HRA CFR so no adjustment is proposed for this – it is assumed any such amounts are not materially significant.

Questions 

Question 7

Considering the objectives set out in this document, and the principles set out, do you agree that the proposed calculation should be the basis for this metric?

• yes
• partially
• no
• don’t know/not applicable

Please explain.

Question 8

Should the metric include statutory MRP only or voluntary MRP and statutory MRP?

• statutory MRP
• voluntary and statutory MRP
• don’t know/not applicable

Please explain.

Threshold determination

This section sets out the government’s proposals for determining a threshold for each of the capital risk metric calculations, the breaching of which would be the trigger event of an authority and bring them in scope of the powers.

The Risk Management provisions allow that different thresholds can be set for different groups of authority (although each authority must have one determined value for each metric which must be compared to one specific threshold). This section sets out the government’s proposals for how authorities will be grouped for comparative purposes with respect to the setting of a specific threshold for each group.

The capital risk metrics rely on timely and accurate statutory data returns, which local authorities are required to complete. While the Department recognises that exceptional circumstances, such as serious data incidents, may occasionally prevent submission by the deadline, and will take account of cases where it is already in engagement with an authority. As the metrics operate on a relative basis, missing or incomplete data undermines their effectiveness and the Department’s ability to assess risk consistently across the sector. Authorities are also reminded of their best value duty, including the importance of transparency and accountability. 

Methodology for determining thresholds

There are 2 main options for determining the risk thresholds for each capital risk metric. The first is to set hard limits, whereby a specific numerical value is set for each metric. These limits may vary for different groups of authority but are otherwise fixed. For example, for metric one a hard limit might be a CFR/TSE ratio of 10 (illustrative only), with any ratio in excess of that limit falling within scope of the powers. The second option is to set a relative threshold, whereby the values for a given metric are compared across a defined group of authorities and the threshold set to identify statistical outliers.

For each of the metric calculations set out above, we propose using the relative threshold method. While a hard limit has the advantage of being simpler to understand and apply, it requires the government to exercise judgement in determining a fixed level of acceptable risk. Such limits may be difficult to calibrate appropriately across a diverse sector and may become outdated as financial conditions, policy priorities or authority behaviours evolve. 

A relative threshold is more complex, but has the benefit of relying less on centrally determined judgements and instead reflects the observed characteristics of authority behaviour. On the premise that the majority of authorities do not engage in problematic practices, the approach seeks to identify those authorities that are statistical outliers, where excessive risk is more likely to arise. A relative method can also account for system-wide shifts. For example, if borrowing across the sector increases because authorities prioritise the delivery of additional housing, the threshold would adjust with the distribution of activity, allowing significant outliers to continue to be identified without automatically bringing a larger number of authorities within scope. By contrast, fixed thresholds could impose arbitrary constraints on authorities, potentially distorting behaviour and requiring frequent recalibration to remain relevant.

Setting the threshold limits

Where a relative threshold method is used, there are different options for how statistical outliers may be identified. The principal choices are, first, the statistical method used to identify outliers and, second, the degree of stringency applied within that method, with a more stringent threshold resulting in fewer authorities being identified as outliers.

We propose that, for each metric and each relevant group of authorities, the threshold should be set using an interquartile range approach. Under this method, the distribution of values across authorities is divided into 4 equal parts (quartiles). The interquartile range (IQR) represents the spread of the middle 50 per cent of values, calculated as the difference between the third quartile (Q3) and the first quartile (Q1). The threshold is then determined by adding a multiple of this range to the third quartile, using the following formula:

Quartile 3 + (2.5 × Interquartile Range)

This approach identifies authorities whose values are materially above the typical range observed across the relevant group, with the threshold increasing where the spread of values across the sector is wider. Authorities with values above that threshold would be identified as outliers for the purposes of that metric.

An interquartile range approach has the benefit of being transparent, objective and relatively robust to distortion by extreme values. Because it relies on the spread of values within the middle part of the distribution, rather than being driven by the most extreme observations, it provides a stable basis for identifying authorities whose behaviour is materially outside the norm for their peer group. This makes it well suited to a risk-based framework, where the objective is not to capture every authority with elevated risk, but to identify those whose position is sufficiently unusual to merit potential further scrutiny.

The proposed multiplier of 2.5 is intended to strike an appropriate balance between sensitivity and selectivity. A lower multiplier would identify a larger number of authorities, including some whose position may reflect ordinary variation rather than genuinely excessive risk. A higher multiplier would be more stringent but would risk excluding authorities whose metrics indicate a level of risk that is meaningfully outside normal sector behaviour. The proposed level therefore seeks to focus the regime on those authorities that are significant outliers, while avoiding an approach that is so restrictive that it fails to identify cases of concern.

The government would keep the methodology under review and refine it as necessary in the light of further evidence, including the distribution of results across the sector, the extent to which identified outliers correspond to genuine indicators of concern, and any changes in authority behaviour over time.

Practically, this has the benefit of focusing central government’s resources on those outlier/extreme cases where the risk of financial failure is more probable. For the sector, setting a high threshold supports authorities to continue delivering the government’s priorities including housing and growth.

Segmenting of authorities for the purposes of thresholds

The government proposes that for the purposes of determining thresholds that different thresholds be applied to different groups of authorities. This is to reflect the different characteristics of different classes of authorities, including differences in statutory responsibilities. 

The proposed segmentation for each metric is as follows:

Metric 1

Local authorities will be subdivided into district councils operating within a two-tier county area (referred to in this document as ‘district councils’) and all other authorities comprising single-tier authorities, county councils and combined authorities. This reflects differences in statutory responsibilities and the relatively smaller size of district councils. These groups will be further subdivided into those authorities with an HRA and those that do not, reflecting that authorities with HRAs are likely to have HRA-related debt which can materially affect their overall debt profile.  

Metric 2

Local authorities will be subdivided into district councils and all other authorities, comprising single-tier authorities, county councils and combined authorities.

Metric 3

No subdivision. All authorities in scope will be treated as a single group for the purposes of this metric.

Metric 4

No subdivision. All authorities in scope will be treated as a single group for the purposes of this metric.

The primary segmentation proposed is the separation of district councils operating within a two-tier county area from other authorities. District councils are generally significantly smaller than single-tier or county councils across most measures of financial resources, reflecting their more limited financial scale of statutory responsibilities. Analysis of existing data indicates that district councils tend to have materially higher debt-to-size ratios than other classes of authority. Grouping them together with larger authorities could therefore distort the distribution of values and mask cases of elevated risk. This consideration is particularly relevant for metrics 1 and 2, but less so for metrics 3 and 4, which are largely independent of authority size.

The government also recognises that authorities with a HRA are likely to hold debt associated with the financing of their housing stock. Under the relevant statutory framework, HRA income and expenditure are ring-fenced, and debt servicing costs associated with HRA borrowing should be met from HRA resources. HRA borrowing is also typically linked to the financing of social housing assets and therefore has a different risk profile from General Fund borrowing. However, as all borrowing carries some level of financial risk, the government does not consider it appropriate simply to exclude HRA-related CFR from metric one. Instead, the proposed approach is to separate authorities with an HRA from those without one, so that thresholds are derived from groups with more comparable debt structures.

Questions

Question 9

Do you consider the use of a relative, interquartile range-based threshold to be an appropriate approach for identifying significant outliers in the metrics?

• yes
• partially
• no
• don’t know/not applicable

Please explain your answer. 

Question 10

In your view, are there alternative statistical methods that would be more appropriate for identifying outliers?

• yes
• partially
• no
• don’t know/not applicable

If yes, please explain. 

Question 11

Do you agree with the proposed approach to separating district councils (as defined herein) from other authorities for the purposes of metrics 1 and 2 ? 

• yes
• partially
• no
• don’t know/not applicable

If yes, please explain. 

Question 12

Do you agree with the proposed approach to separating authorities with and without a Housing Revenue Account for the purposes of metric 1? 

• yes
• partially
• no
• don’t know/not applicable

Please explain your answer.

Operational principles for the use of the capital powers

This section sets out the government’s proposal for how the capital risk metrics and associated statutory powers would operate in practice. These principles are intended to support transparency, proportionality, and consistency, while preserving appropriate discretion for the government in individual cases.

Proposed operational approach

The Department will undertake an annual exercise to calculate each risk metric for each relevant authority and the corresponding risk threshold for each relevant group of authorities. The proposed calculations require data from the Revenue Outturn Return, the Capital Outturn Return and the Borrowing and Investment Live Tables. This exercise will be carried out each year once the final outturn data for those returns has been published by government. For consistency, the data point taken will be as at 31 March for the prior financial year at the time of the analysis.

As the data relates to the preceding financial year, the metrics will necessarily be calculated using historic data. This has the benefit that the analysis will be based on final outturn information rather than forecasts, and should therefore provide a more robust and consistent basis for assessment. The drawback is that the metrics may not capture the most recent changes in an authority’s financial position, including actions already taken by an authority to reduce risk, or emerging risks that have arisen since the end of the relevant financial year. For that reason, the metrics are intended to provide an evidence base for further assessment rather than a definitive or self-standing judgment on an authority’s current financial position.

Where the analysis indicates that an authority has breached the risk threshold in relation to one or more metrics, this will not automatically result in intervention by government. The government will first consider the outcome alongside wider information, including trends over time, the authority’s overall financial context, and any relevant local or structural factors. The purpose of this assessment is to determine whether there is evidence of excessive financial risk that may warrant further engagement. As required by the legislation, the government must also consider the likely impact of any intervention on local service provision and have regard to the authority’s duty to secure best value.

Where an authority has breached one or more risk thresholds and there is evidence of excessive financial risk, the government would ordinarily write to the authority to provide it with an opportunity to submit contextual information, additional evidence, or to identify any data quality issues before any statutory action is considered. This is intended to support accuracy, fairness and constructive engagement. There may, however, be cases where it is necessary for the government to proceed more expeditiously in considering the use of the statutory powers, for example where there is evidence of acute or rapidly escalating financial risk, where delay could materially increase the risk of financial failure, or where urgent action may be necessary to protect public funds or the continuity of local services.

Any decision to exercise the statutory powers would be taken in accordance with the legislative framework set out in the Local government Act 2003, as amended. The Secretary of State may issue directions only where the legal conditions are met and only where satisfied that doing so is appropriate and proportionate to the level of financial risk identified.

In considering whether to intervene, the legislation requires the government to have regard to the likely impact on local service provision and the authority’s duty to secure best value, and it may also take account of wider policy considerations. In practice, this means that a breach of a metric threshold would not in itself determine the form of any intervention, and that any response would need to be tailored to the circumstances of the authority, the nature and severity of the risk identified, and the likely consequences of intervention. The objective would be to mitigate excessive financial risk in a way that is proportionate and consistent with the continued delivery of essential services.

Before any direction is made, the authority would be given notice and an opportunity to make representations, in accordance with the statutory framework and the requirements of procedural fairness.

The framework is intended to complement, rather than duplicate, existing oversight and assurance arrangements. Where an authority is already subject to support, intervention or agreed improvement activity, the operation of the capital powers would take account of those circumstances.

The government intends to keep the methodology for the metrics and thresholds under review and may refine it over time in the light of evidence, including changes in authority behaviour, improvements in data quality, developments in sector structures, and lessons learned from the operation of the regime in practice.

The government considers transparency to be an important feature of the framework. The methodology for calculating the metrics and thresholds will be published, enabling authorities to understand how the metrics operate and how their own data feeds into the assessment.

Timing

The government proposes to begin implementation of the capital risk metrics using the next available cycle of annual data returns, with an initial period during which the metrics will be used to support learning, engagement and data improvement.

Ahead of implementation, the government intends to publish technical guidance setting out the detailed calculation of each metric, the data sources used, and illustrative examples to support understanding across the sector.

Questions 

Question 13

Do you agree with the proposed operational approach? 

• yes
• partially
• no
• don’t know/not applicable

Please explain.

About this consultation 

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.  

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond. 

Information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation. In certain circumstances this may therefore include personal data when required by law. 

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the Department is bound by the information access regimes and may therefore be obliged to disclose all or some of the information you provide. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the Department. 

The Ministry of Housing, Communities and Local Government will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below. 

Individual responses will not be acknowledged unless specifically requested. 

Your opinions are valuable to us. Thank you for taking the time to read this document and respond. 

Are you satisfied that this consultation has followed the Consultation Principles? If not or you have any other observations about how we can improve the process please contact us via the complaints procedure.

Personal data

The following is to explain your rights and give you the information you are entitled to under UK data protection legislation.

Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally) not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Ministry of Housing Communities and Local Government is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk or by writing to the following address:

Data Protection Officer 
Ministry of Housing Communities and Local Government 
Fry Building 
2 Marsham Street 
London 
SW1P 4DF

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

We will collect your IP address if you complete a consultation online. We may use this to ensure that each person only completes a survey once. We will not use this data for any other purpose.

Sensitive types of personal data

Please do not share criminal offence data or special category personal data if we have not asked for it unless absolutely necessary for the purposes of your consultation response. By ‘special category personal data’, we mean information about a living individual’s:

• race

• ethnic origin

• political opinions

• religious or philosophical beliefs

• trade union membership

• genetics

• biometrics

• health (including disability-related information)

• sex life

• sexual orientation

By ‘criminal offence data’, we mean information relating to a living individual’s criminal convictions or offences or related security measures.

3. Our legal basis for processing your personal data

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation as it is necessary for the performance by MHCLG of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation. The publication of your personal data is lawful under article 6(1)(c) of the UK General Data Protection Regulation as it is necessary for compliance with a legal obligation to which MHCLG is subject. The relevant legal obligation is the obligation in s197(8)(b) for the Secretary of State to publish each response to a consultation.

Where necessary for the purposes of this consultation, our lawful basis for the processing of any special category personal data or criminal offence data (terms explained under ‘Sensitive Types of Data’) which you submit in response to this consultation is as follows. The relevant lawful basis for the processing of special category personal data is Article 9(2)(g) UK GDPR (‘substantial public interest’), and paragraph 6 of Schedule 1 to the Data Protection Act 2018 (‘statutory etc and government purposes’). The relevant lawful basis in relation to personal data relating to criminal convictions and offences data is likewise provided by paragraph 6 of Schedule 1 to the Data Protection Act 2018.

4. With whom we will be sharing your personal data

MHCLG may appoint a ‘data processor’, acting on behalf of the department and under our instruction, to help analyse the responses to this consultation. Where we do we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period

Your personal data will be held for 2 years from the closure of the consultation unless we identify that its continued retention is unnecessary before that point.

6. Your rights, e.g. access, rectification, restriction

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you and ask to access it

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO online, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO: dataprotection@communities.gov.uk or

Knowledge and Information Access Team 
Ministry of Housing Communities and Local Government 
Fry Building 
2 Marsham Street 
London 
SW1P 4DF

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for 2 years before it is deleted unless we identify that its continued retention is unnecessary before that point.