Issue - meetings

To present to Council the recommendations of the Cabinet for setting of a prudent Minimum Revenue Provision (MRP) for the repayment of debt, and to report on the status of the ongoing review of MRP policy and any further advice on the options to revise the policy.

(a)       That Members approved for the Council Fund (CF) unfinanced capital expenditure, changing the MRP policy for  supported and unsupported borrowing from ‘straight line’ to the ‘annuity’ method from 2017/18.  This would mean that:-

• The historic balance of outstanding capital expenditure funded from supported borrowing as at 31 March 2017, will be provided for on an annuity basis over the remaining 49 year period (as it was changed to straight line over 50 years in 2016/17)

• 2016/17 capital expenditure funded from supported and unsupported borrowing (and future years) will be provided for based on the asset’s life on an annuity basis

(b)       That Members approve for the Housing Revenue Account (HRA):-

• Option 2 (Capital Financing Requirement Method) be used for the calculation of the HRA’s MRP in 2018/19 for all capital expenditure funded by debt.

(c)        That Members approve that MRP on loans from the Council to NEW Homes to build affordable homes through the Strategic Housing and Regeneration Programme (SHARP) (which qualify as capital expenditure in accounting terms) be as follows:-

• No MRP is made during the construction period (of short duration) as the asset has not been brought into use and no benefit is being derived from its use.

• Once the assets are brought into use, capital repayments will be made by NEW Homes. The Council’s MRP will be equal to the repayments made by NEW Homes. The repayments made by NEW Homes will be classed, in accounting terms, as capital receipts, which can only be used to fund capital expenditure or repay debt which is a form of MRP. The capital repayment/capital receipt will be set aside to repay debt, and is the Council’s MRP policy for repaying the loan.

The Corporate Finance Manager introduced the report to present the recommendations of Cabinet for the setting of a prudent Minimum Revenue Provision (MRP) for the repayment of debt, and to report on the status of the ongoing review of MRP policy and any further advice on the options to revise the policy. 

The Corporate Finance Manager provided background information and referred to the recent review of the Council’s method of calculating the Minimum Revenue Provision policy and the merits of moving to a different model similar to a number of English local authorities.  He reported on the three main options for consideration and the difference between the straight line and annuity methods as detailed in the report.  The Corporate Finance Manager also explained the reasons why the straight line method was favoured in the 2016/17 review and why the annuity method could be considered at least as prudent.  He drew attention to the table in the report which summarised the difference in the MRP charged for outstanding council fund capital expenditure funded from supported borrowing and unsupported borrowing using the current straight line method and the annuity method for the next fifty years. 

In conclusion the Corporate Finance Manager commented that prudence was a subjective concept and therefore none of the options or methods described could be assessed as being the absolute correct method as it was a matter of judgement.  The option must first and foremost be prudent but also sustainable and affordable over the long term and it was for Council to decide which method it considered to be prudent.

The Chief Executive acknowledged the complexity of the subject and commented on  the work which had been undertaken on the review of the MRP policy last year.  He provided background information and context on the recent urgent review of the MRP policy following a recommendation made through a very recent independent peer review of the Council’s financial position.    The Chief Executive advised that following further recent discussions with the Welsh Audit Office and the retained advisors Arlingclose, officers were confident in recommending that option 2, the annuity method, was a prudent method, consistent with guidance, and was an ‘open’ option for consideration by the Council.

Councillor Richard Jones said he did not support the recommendation  for option 2, as he felt it was not prudent or sustainable due to the fact  that there would be an increase in future years.  He referred to a report to a meeting of the Cabinet in 2016 and the advice and decision making at that time regarding prudence and the MRP.  He suggested that the straight line method be continued for the MRP for the sake of the medium term financial plan.

The Chief Executive and Corporate Finance Manger provided further clarity in response to the concerns raised by Councillor Jones and advised that the annuity method was no less prudent than the existing straight line method and was no more costly to the Council or Flintshire’s tax-payers as it takes  ...  view the full minutes text for item 115