Source · Select Committees · Public Accounts Committee
Recommendation 10
10
When we asked about a potential ballooning effect due to local authorities continually delaying and...
Conclusion
When we asked about a potential ballooning effect due to local authorities continually delaying and deferring payments on borrowing the Department told us the measures being consulted on would ensure that local authorities are paying MRP from revenue rather than other sources, and their MRP covers all their assets.33 We asked whether its measures would deal with past underpayments. The Department responded that it was not planning to “because of the risks in some cases” that correcting these underpayments in one go “may have very serious impacts on the financing of the local authority”, citing the example of Slough.34 Incorrect calculation of MRP was a major contributory factor in Slough’s Section 114 notice and request for exceptional financial support.35 The Department stated that “we have a clear understanding of the local authorities that we think are at risk” and it proposes to “engage intensively with the local authorities that have an underpayment problem historically” to deal with the issue more gradually.36
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.