Source · Select Committees · Public Accounts Committee
Recommendation 9
9
Where a local authority borrows, it must set aside money each year to repay the...
Conclusion
Where a local authority borrows, it must set aside money each year to repay the debt, so the costs do not fall wholly on future council taxpayers; this is known as Minimum Revenue Provision (MRP). MRP ensures councils reflect the cost of borrowing 16 C&AG’s Report, p. 39; Committee of Public Accounts, COVID-19: Local government finance, Fourth Report of Session 2021–22, HC 239, 4 June 2021; Q11. 17 Comptroller and Auditor General, Local government finance in the pandemic, Session 2019–21, HC 1240, 10 March 2021, para 2.16 18 Committee of Public Accounts, Oral evidence: Department for Levelling Up, Housing and Communities recall, HC 744, 1 November 2021, Qq 11–17 and 55. 19 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016 20 C&AG’s Report, Figure 14. 21 Committee of Public Accounts, Financial sustainability of local authorities, Twenty-Sixth Report of Session 2016–17, HC 708, 18 November 2016, recommendations 1 and 6, pages 5 and 7 22 Comptroller and Auditor General, Local authority investment in commercial property, HC 45, Session 2019–20, 13 February 2020. 23 Committee of Public Accounts, Local authority investment in commercial property, Eleventh Report of Session 2019–21, HC 312, 13 July 2020; C&AG’s Report, Figure 14 24 Ministry of Housing, Communities & Local Government, Local authority capital finance framework: planned improvements, policy paper, 28 July 2021, available at Local authority capital finance framework: planned improvements - GOV.UK (www.gov.uk); Q14 12 Local Government Finance System: Overview and Challenges in their current budgets and act prudently.25 In 2016, when the then Committee asked the Department about its ability to identify capital and investment trends it told us it had identified changes in MRP practice that were “worth analysing”.26 The Department changed its statutory guidance on MRP in February 2018.27 Nonetheless, the level of MRP made i
Government Response
Not Addressed
HM Government
Not Addressed
2.1 The government agrees with the Committee’s recommendation. Target implementation date: Summer 2022 2.2 The government published its policy paper Local authority capital finance framework: planned improvements on 28 July 2021. This sets out the range of measures being taken to make sure that local authority investment decisions are compliant with the Prudential Framework. The government worked with CIPFA on the updated Prudential Code, which more explicitly limits investing primarily for profit. The government intends to update its own Statutory Guidance on Local Government Investments in 2022. In addition, where authorities have approached the government for financial support, and where capital practices have contributed to the financial failure, the government has made reducing risk part of the conditions of support. 2.3 In the July 2021 document, the government set out its intent to consult on strengthening the Minimum Revenue Provision (MRP) duty in response to the issue of some authorities not making adequate provision to repay debt, an issue identified by the NAO and the Committee. The department’s consultation on strengthening compliance with the MRP duty concluded on 8 February 2022. The consultation sets out proposed changes to regulations. The proposals are designed to stop the two main mechanisms authorities use to avoid an MRP charge: using the proceeds from asset sales instead of meeting the cost from budgets; and, not making MRP on debt that was used to purchase commercial assets. The department plans to publish its response in spring 2022. The department will consider, in discussion with HM Treasury, what further actions are needed for those local authorities that remain non-compliant with the MRP duty.