To approve an amendment to the minimum revenue provision policy in the treasury management strategy.  

Council considered a report concerning an amendment to the minimum revenue provision (MRP) contained within the Treasury Management Strategy. The Cabinet Member Finance, Housing and ICT introduced and moved the report and explained the statutory requirement on the council to set an MRP. Guidance issued in 2008 proposed four options for establishing a prudent MRP; following guidance from specialist financial advisors it has been recommended that the annuity method was used to calculate the MRP.

The comments below were raised during the debate:

·         There was concern that the proposal would place a burden on future generations of taxpayers and local residents by delaying the repayment of debt.

·         The proposal was not felt to take adequate account of the capacity of the Council to be able to service debt and make increased repayments from the 2030s onwards. It was noted that the proposal only concerned the debt currently held by the council and not any future borrowing which may occur; the proposed approach would potentially restrict the council’s capacity to borrow in the future. It was noted that a number of cells in the last column of appendix 3 should be coloured red rather than green to denote outstanding debts of £14million by 2066. The Chief Finance Officer confirmed that the underlying loans would not change and loans from the Public Works Loans Board were fixed. It was the accountancy treatment of those loans that would change through the MRP proposal. Inflation had not been taken into account in the calculations in the tables which would reduce the liability to the council in future years.

·         Clarity was required regarding the management and assessment of an assets useful life. It was commented that assets were not necessarily available for their projected life and could become liabilities to the council which was not adequately assessed in the report. There was concern that the proposal would result in greater cost to the council. The cabinet member finance, housing and ICT explained that inflation would have an effect and the proportion of the budget of the council in future years dedicated to the repayment of debt would be reduced. Assets were reassessed and revalued during the course of their lifetime. Interest costs would be tied to the lifetime of assets.

·         The approach had been adopted at other authorities and surprise was expressed that it had not already been implemented at the Council.

·         It was noted that few local authorities had adopted the approach and a significant risk concerned its complexity and impact on staffing. It was not felt that the external auditors had provided a clear endorsement of the proposal. A large number of councils had adopted the policy and a list could be provided if required. The Chief Finance Officer confirmed the external auditors would form an opinion every year about the MRP. 

·         The report outlined a technical accounting issue which had been endorsed by CIPFA. It was felt that members should be focused on the Fairer Funding review report to assess whether  ...  view the full minutes text for item 31

To recommend to full Council an amendment to the council’s current Minimum Revenue Provision (MRP) policy to change the debt repayment calculation basis to an annuity method.

The cabinet member for finance, housing and ICT introduced the report. He noted that the subject matter was technical in nature and covered the way in which the council reflected the notional costs of borrowing in the budget, as required by regulation. Unusually the regulations were not proscriptive and gave four options from which the council could choose. The proposed change would not reflect on the council’s actual borrowing costs.

The chief finance officer explained how the proposed method would operate.

In response to questions raised it was noted that:

·         the minimum revenue provision (MRP) was a notional sum to set aside to pay for borrowing, in reality not all of the council’s capital expenditure would be funded from borrowing and the costs were therefore less than MRP;

·         the approach proposed would match the cost of borrowing to the life of the asset, if an asset was disposed of in any way then an adjustment to the MRP would be required;

·         prior to 2008 the cost was based on a fixed 25 year life for all assets regardless of their type, this was a blunt tool

·         all of the four options available had advantages and disadvantages but the option proposed would link more closely the asset type and lifespan;

·         all of the costs were written in today’s terms and did not include inflation;

·         the report was not about the level of borrowing or whether the council should borrow or not;

·         the council had taken advice on the proposed approach, the external auditor had reviewed the proposal and had not provided any comment at this stage;

·         the majority of council’s across the country had opted to use the approach proposed.

Resolved that:

(a)  It be recommended to full Council that an amendment be approved to the current MRP policy within the Treasury Management Strategy to be based on the estimated life of the assets, in accordance with regulations, and the method of repayment to be through an annuity calculation (providing a consistent overall annual borrowing charge).