Local authority finance directors and treasury advisers have welcomed the government’s revised Minimum Revenue Provision (MRP) proposals, while pointing out that some unintended consequences still remain.
The government’s previous proposals on MRP, announced in November 2021, were criticised by many in the sector because of the unintended consequences that could follow where authorities have made capital loans. In response, the Department for Levelling Up, Housing and Communities (DLUHC) has amended the proposals to provide “additional flexibilities”.
The latest proposals will allow MRP on capital loans for service purposes to be limited to covering the IFRS 9 expected credit loss on the loan. They will also permit capital receipts to be used instead of a revenue charge for MRP on all capital loans, including those made for commercial purposes, in the year of receipt.
This flexibility also applies to assets leased out under finance leases, so that the capital receipt part of the income can cover the revenue cost.
This is a great example of a mature approach to consultation. DLUHC had some legitimate policy concerns but have listened carefully to the sector’s concerns.
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Consultation consensus
Conrad Hall, corporate director of resources at the London Borough of Newham and chair of the CIPFA/LASAAC Code Board, told Room151: “I think this is a great example of a mature approach to consultation. DLUHC had some legitimate policy concerns as the responsible government department but have listened carefully to the sector’s concerns about possible unintended consequences.
He added: ”The revised draft regulations would repay careful reading to check they would work as intended, as this is such a complex area, but the intent is clear and I think a distinct improvement on the original proposals.”
DLUHC said that it did not want to “stymie sensible investment or cause undue financial pressures”. It had considered the concerns across local government “balanced against the government’s objective of strengthening the duty to make MRP and to safeguard against practices that result in under-provision”.
Chris Tambini, director of corporate resources at Leicestershire County Council and president of the Society of County Treasurers, said: “We are pleased DLUHC have listened to the sector on the proposed approach of charging MRP on capital loans. The new proposals seem a sensible and prudent approach to this issue.”
We are pleased that the government has listened to authorities’ concerns during the consultation process and has amended its proposals accordingly.
Further amendments required
David Green, strategic director at Arlingclose, which advises local authorities on treasury issues, said: “The sector will welcome these changes, as DLUHC’s November proposals would have severely limited new loans to other bodies to support local services and imposed a revenue cost on loans from previous years still outstanding.
“We are pleased that the government has listened to authorities’ concerns during the consultation process and has amended its proposals accordingly. However, the regulations as currently drafted would introduce unintended consequences, for example on housing assets, and therefore further amendments will be required.”
DLUHC has issued a rapid consultation on the new proposals that will close on 1 July 2022. It said a full response to the consultation would be issued “in due course”.
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