“On the 1st Day of Christmas my true love (section 151 officers) said to me (chief executives) – “I’ve got a list of 12 things for you to do!” The Trowers Hamlin team consider the 2022 New Year to do list.
1. Prepare for changes to MRP rules
On the 30th November the government launched a consultation on changes to the minimum revenue provisions of the capital framework.
Up until now there has been considerable flexibility in how to determine the “prudence” of the amount of revenue set aside to finance capital spend. Apparently some authorities have been adopting practices which are not regarded as compliant with the requirement to make a prudent revenue provision.
The consultation proposes that the Local Authorities (Capital Finance and Accounting) (England) Regulations 2003 be amended so that it will no longer be permissible to use capital receipts from the sale of assets in place of a revenue charge.
If the draft regulations are enacted councils will also no longer be able to exclude debt relating to investment assets from the requirement to set aside a prudent MRP.
2. Think about a health check for PFI contract(s)
It’s time to review the PFI. Councils need to see if they have all the relevant monitoring documents from the special purpose vehicle and making the deductions they are entitled to.
Is contract management robust enough? There’s also a need to scope out the terms of proposed refinancing put forward contractors. Does it justify the additional risk increase against share of the gain? And finally, could a variation be considered to make sure buildings are used to their full capacity? This may mean getting more value from the unitary charge.
3. Review investment strategy so it is fit for purpose
Following several high-profile secretary of state interventions, local authority finances (including investments) are subject to a high level of scrutiny. Investment strategies, if fit for purpose, need to reflect current and prospective programmes and must also comply with the 2018 statutory guidance on local authority investments. Including the stipulation that indicators should be adopted to enable members to understand the total exposure from borrowing and investment decisions.
It is also important to ensure new investments comply with PWLB’s lending criteria. This includes those investments which are not funded by PWLB loans.
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Now councils up and down the country have declared a climate emergency, what are they doing about it?
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4. Consider the loan portfolio
PWLB has been popular in the past. But their rules have recently changed and now, in order to borrow, councils have to confirm that they have no plans to buy investment assets primarily for yield in the following three years.
There are also private sector alternatives that could be more flexible than PWLB. For example, a private placement or structured loan facility could allow councils to fix now the interest to pay later (something PWLB cannot offer).
The Municipal Bonds Agency is looking at issuing ethical bonds next year too. Maybe councils could “dip their toe” into the capital markets as part of a pooled transaction with other authorities?
5. Are we getting Five Gold Rings when we procure?
Forthcoming reforms should allow more flexible procurements and facilitate SMEs bidding for, and winning, council contracts.
Local authorities will be able to consider new business and job creation in procurement decisions. They can also block companies with a poor track record and they can ban unethical suppliers with poor safety and environmental practices.
Councils will also have to comply with stringent new transparency measures on publishing procurement data. Officers need to be ready to take advantage of these reforms.
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6. Review governance of the companies in which councils own shares.
Especially that energy company which has been losing so much money!
Local authorities have a fiduciary duty to obtain value for money as a shareholder.
They must check company business plans, audit the directors’ skills, see if the articles are fit for purpose, draft a robust service contract and update the shareholder agreement. Is the company complying with company and procurement law?
7. We’ve declared a climate emergency, what now?
Now councils up and down the country have declared a climate emergency, what are they doing about it?
Here are a few ideas. Make sure buildings more energy efficient and make sure development projects accommodate anticipated changes such as increased uptake of electric vehicles and heat pumps.
Action should also be taken to encourage sustainable transport by using influence to reduce the space taken up by cars and encouraging council workers out of their own vehicles.
Some ideas won’t cost councils us anything. They might develop a full strategy to achieve carbon neutrality and get all their staff and stakeholders involved.
8. Are you prepared for the new building safety regime and what being an “accountable person” means?
The Building Safety Bill introduces numerous new duties holders and the new concept of an ‘accountable person’.
How will a council discharge its responsibilities, including ensuring that it has safety cases ready for sign-off by the new Regulator for Building Safety.
If higher risk buildings (18 metres or 7 storeys) do not get a building assurance certificate they cannot be lawfully occupied.
And councils cannot afford not to collect the rent. They need to ensure that they are as well placed as they possibly can be to implement the new safety regime and this means that it should be fully understood within organisations.
Implementation strategies will also be needed. Who is going to be the accountable person, with the attendant, potential, criminal liability?
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Looking to grow local opportunities for young people should be a priority as they have been hit the hardest by the pandemic.
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9. Get ready for the levelling up white paper.
While we have seen the benefits of the levelling up agenda in the form of pots of cash that have helped councils deliver certain objectives, officers need to be mindful that the possible emphasis on reorganisation may mean they have to consider what our future shape looks like.
We all await the arrival of the white paper, but replacement by a unitary may be the inevitable direction of travel, and there is much we can do in advance to consider the benefits of more cohesive working with neighbouring authorities.
Council officers should consider more shared services and joint working as a step on that journey.
10. Are we embedding social value considerations throughout the authority?
Are commercial arrangements delivering maximum value? This doesn’t always mean the lowest price but the delivery of social value in all its forms.
The Five Gold Rings point alerts you to the opportunities that the procurement reforms offer. Councils should therefore move to standardise procurement processes and implement strategies that allow them to use their buying power to support local business and our citizens in a more meaningful way than currently.
Looking to grow local opportunities for young people should be a priority as they have been hit the hardest by the pandemic.
Local authorities always strived to add value to local communities and have evidenced that in so many ways over these last, trying 18 months. They need to consolidate all those new ways of working into a new commercial model that strives to do more at every step.
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11. The pandemic has stalled regeneration projects. Some tips to consider.
For some of projects, Covid has raised viability and, or, delivery concerns. Town centre schemes, which intended to deliver general office and retail accommodation, may be vulnerable.
Can changes be made to reboot the schemes? For example, affordable workspace for start-ups and studios for art and trade-based businesses; the conversion of failed retail space into research or cultural space and the delivery of new rented homes?
Central and regional government also has funding streams which may be available. For new schemes councils could consider a direct delivery role using partners and their supply chain to deliver skills and works for us?
12. Is there more we can do to support our communities—public subsidy is our friend.
It’s almost 12 months since subsidy control replaced state aid rules in Great Britain. Subsidy control requires councils to analyse proposed subsidy to ensure it supports policy objectives, is financially efficient, does not distort UK competition nor affect UK trade agreements.
It is currently a less rigid system than state aid as it does not yet have detailed “block exemptions” or rules which must be followed.
Councils should not be put off supporting our communities because it is new. They can do many things to help communities by taking advantage of national funding programmes, supporting public transport, research facilities, business parks, housing, affordable office and art studios, factories and business parks, infrastructure, employment, training and cultural/heritage projects.
On the 13th day of Christmas I responded to my true love. “That’s a brilliant list of things to consider. I’d like your detailed action plan for each item in the first week of January 2022. Happy New Year.”
Contributions from Scott Dorling, Amardeep Gill, Paul McDermott, Helen Randall and Neil Waller, partners at Trowers & Hamlin LLP.
Photo by Ben White on Unsplash
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