Government proposals on Minimum Revenue Provision (MRP) could “massively harm local government”, delegates at the Room151 Local Authority Treasurers Investment Forum (LATIF) North have been warned.
Danny Mather, head of corporate finance at Warrington Borough Council, said that the MRP proposals could “lead to the failure of many housing companies” and result in additional costs of £700m falling on local authorities. There was a particular issue, he said, with loans from local authorities to housing associations for economic regeneration.
“It is going to primarily stop housebuilding, it is going to stop placemaking. And I think it is going to stop a lot of the work that will happen in the future on climate change,” he said.
MRP is required when local authorities borrow to finance their capital expenditure. The government believes that some councils are not making prudent revenue provision, and issued a consultation on the issue that closed on 8 February.
Mather pointed to research from the Local Government Association suggesting that reversing underpayment of MRP could impact council budgets by £700m. “If these changes do come in, it means that £700m pressure is coming our way, probably sometime in the autumn,” he told the forum in Leeds.
Warrington Borough Council recently agreed to pay a “voluntary” backdated MRP charge of £10.7m and a yearly payment of £5-6m per year for 50 years. This followed an intervention from external auditor Grant Thornton.
But Mather said that auditors generally needed to do more to identify when MRP is inadequate. “A lot of this could be solved by getting the auditor to do what they are paid to do. If you go to most local authority audit reports, you will very rarely find a comment on MRP.”
He claimed that there were a dozen authorities with borrowings the size of Warrington’s that had been “signed off” by auditors without asking for improvements to MRP.
A lot of this could be solved by getting the auditor to do what they are paid to do. If you go to most local authority audit reports, you will very rarely find a comment on MRP.
MRP ‘rising up the audit pecking order’
However, Paul Dossett, head of local government at Grant Thornton, told Room151 that MRP had “come up the pecking order of auditors’ concerns” in the past couple of years in the light of the serious financial issues in Slough, Croydon and other councils. “What you would actually find in the 20/21 audits is that there is a significant focus on MRP,” he said.
Dossett said that Grant Thornton had a rule of thumb that if MRP were around 2% or above then “broadly speaking that gives a degree of comfort”. If it were below that, Grant Thornton auditors would ask more detailed questions.
Speaking at the same LATIF North session, Mel Creighton, deputy chief executive and director of finance and resources at Liverpool City Council, told delegates that attempts by councils to reduce their MRP had “never sat well with me personally”.
“It was a no-brainer when you were dealing with members – do you reduce MRP or do you reduce front-line services? There was always only going to be one choice when it came to that.
“But it always felt that we were storing up a problem for future generations.”
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