Recommendation of an alternative approach to the calculation of MRP.

(KEY DECISION)

Report No. 192/2017 from the Director for Resources was received.

Mr Della Rocca, Assistant Director – Finance, introduced the report, the purpose of which was to recommend a change to the Minimum Revenue Provision Policy. 

Local authorities were required to set aside ‘prudent’ revenue provision for debt repayment (Minimum Revenue Position (MRP)) where they had used borrowing or credit arrangements to finance capital expenditure.  The guidance required authorities to publish an annual MRP policy statement outlining how prudent provision was to be made.  To be valid, the policy statement must be approved by Council.

During discussion the following points were raised:

i.      The report was asking for a change in policy in relation to previously supported General Fund borrowing so that this borrowing is paid on an equal instalments basis rather than a reducing balance (“regulatory method”) basis;

ii.     The outcome of the currently ongoing Government consultation in this area would not affect the proposals being put forward for the changes to the policy;

iii.    The changes proposed to the MRP policy statement would result in a short term saving and would result in the debt being fully extinguished after 50 years;

iv.   The changes would have a positive effect on the revenue account, but this would not affect the Council’s position regarding government funding.  The government funding formula considered levels of deprivation and demand for social care for example, but did not consider the specific financial position of each Council; and

v.     The depreciation method detailed in the 2017/18 Treasury Management Strategy could not be applied to expenditure incurred before 2008 as the historic debt was inherited such a long time ago it would be impossible to identify assets connected to that debt.

DECISION

1.    Cabinet RECOMMENDED TO COUNCIL that the Minimum Revenue Provision policy be changed so that historic debt was charged on an equal instalment basis to the Revenue Account from 1^st April 2018.

Reason for Decision

1.    The equal instalments approach to calculating MRP was arguably more prudent than the ‘regulatory method’ as it resulted in debt being fully extinguished after 50 years.  Under the ‘regulatory method’ (the current approach), more than £3m of debt remained outstanding after 50 years’ time with around half of this figure never being repaid at all.  In present value terms, the equal instalments method was also more cost effective than the ‘regulatory method’ being some £0.2m lower in present value terms.