Agenda item

To consider the report of the Chief Officer Resources.

The report of the Chief Officer Resources was submitted for consideration.

At the invitation of the Chair, the Chief Officer Resources spoke to the report which proposed a change to the Minimum Revenue Provision (MRP) policy and explained the impact this would have on the MRP going forward.

The Chief Officer, thereupon, highlighted the following salient points contained therein:

-      During February/March 2021, the Council had engaged Treasury Advisors, to conduct a review of the current MRP policy. The review had identified the opportunity to change two elements of the current policy, which would provide positive benefits to the Council by reducing the annual MRP charge until 2031/32 for unsupported borrowing and 2057/58 for supported borrowing. 

The proposed changes were detailed in Section 6 of the report and comprised of:

·        a change in the supported borrowing element of the MRP from 2% straight line to a 50-year annuity basis; and

·        a change in the unsupported borrowing element of the MRP from an annuity basis to a weighted average annuity basis.

-      It was noted that the annuity method provided a fairer charge than equal instalments because it took account of the time value for money for example, paying £100 in 10 years’ time was less of a burden than paying £100 now.

-      It was also proposed an alternative simplified method which would use an average asset life methodology on an annuity basis for all unsupported borrowing capital projects each year rather than on individual projects.

-      The Council was required to determine a level of MRP it considered to be prudent,whilst having regard to MRP guidance issued by Welsh Government.  It was noted that the proposed changes were in line with examples provided within the Welsh Government Guidelines on the MRP and these were detailed in Appendix 1 of the report.

-      The table at paragraph 5.1.1 of the report illustrated the impact on the MRP charge the methodology would have and if agreed, the revised policy would expect to reduce the MRP charge from 2022/23 onwards.

-      It was highlighted that under the current policy the 2022/23 MRP charge which was £4.47m would reduce to £1.74m under the revised policy and would increase incrementally in future years.  Therefore, based on the current MTFS assumptions, the proposed change in policy would have a positive impact of in excess of £750,000.  However, Members were advised that since the report had been considered at the Corporate Overview Scrutiny Committee in July, further detailed analysis had subsequently been undertaken and the positive impact was now estimated to be £1.3m.

-      Whilst the MRP charge was estimated to increase in subsequent years this charge would be lower than current estimates and would mitigate some of the cost pressure previously identified and reduce the currently assessed budget gaps.  It was important to note that these changes were prospective and it was not proposed to amend any previous year’s calculation and whilst the MRP was a requirement of the CIPFA Code of Practice, the Council was still required to charge a prudent amount to the income and expenditure account to cover the payments on outstanding debt.  It was noted that this change would not impact the actual debt repayments the Council made but merely on the provision that was required to be set aside.

The Leader of the Labour Group commenced by expressing his view that if the MRP policy revision was agreed, this would, at the very least pass on debt to future generations.  Therefore, he felt that a dedicated Cross Party Member Working Group should be established in order that Members could gain a greater understanding and discuss the implications of the policy revision and debate options on the way forward.  He pointed out that the previous MRP policy had been agreed in 2017 and promises had been made that during the lifetime of that policy, that ways of repaying the monies would have been identified to reduce future cost pressures.

The Leader of the Labour Group continued by alluding to the rail project loan that could also have potentially MRP implications and said that there was a need for greater clarity on all the implications detailed within the report. He agreed that whilst it was correct to revise and review the MRP policy (Council’s had taken the same action in previous years including 2015/16 due to severe financial austerity), however, the Council at that time in 2015/16 had identified pathways out of the constraints (i.e. a proposed amalgamation with another local authority) but said that this current Council had not identified any routes forward.  The Leader of the Labour Group concluded by reiterating his concern that this debt would be passed onto future generations and advised he was, therefore, unable to endorse Option 2. 

The Leader of the Council commenced by advising that the debt of the Council would not alter, it was the level of provision that would be adjusted and used to offset the debt.  During 2017 the Council had an opportunity, in accordance with the rules and regulations to review the MRP and backdate the policy which, had benefitted the authority by over £15.5m over a 5-year period.  If this policy had not been adopted, there could have been every likelihood that consideration would have had to be given to cuts to services and in some instances ceasing services, jobs losses and increasing council tax levels and he did not believe that any administration would not have taken this same opportunity.

With regard to the future, the policy would be revised 4 years hence and would provide a more positive position, however, if this revision was not adopted then the Council would revert to the MRP pre 2017 position and this would impact the budgetary position by over £3.5m.  This was a sensible approach and advised that debt would not be pushed into future administrations – it was pointed out that debt needed to be repaid regardless and the majority of debt could not be repaid in the lifetime of one administration and historically debt was passed over from one administration to another but the debt remained same, it was the provision which would be altered.

The Leader continued by stating that he firmly believed that the Managing Director and Chief Officer Resources would not have considered submitting a report if it was felt it would have a long term detrimental effect on the authority and if this was the case, he would not be supporting the proposal and added that the potential implications of not revising the policy could create further problems for future administrations.  The financial position within the authority both from budget setting position and the position regarding reserves needed to be reset and this was being achieved and he was confident that this would be achieved in future authorities. 

The Leader of the Council concluded by pointing out that the £70m rail project loan which had been agreed and discussed on several occasions would have no impact on the MRP policy - the income from that investment would offset the loan and have a negative impact on the MRP policy.

The Leader of the Labour Group said that the key point to note (as outlined in the Medium Term Financial Strategy report which was next to be considered on the agenda) was that the funding the Council had received on a cash basis from Wales Government had increased overall by £11.1m between 2016/17 and 2021/22 and due to the cost implications of the pandemic (which would have to be repaid at some point in time), the Council was only existing because of Welsh Government Hardship funding.  He continued by stating that the Council should be planning for the future as there may come a point when the Council may not be able to deliver services.  The Leader of the Labour Group proposed that Option 1 be endorsed and a Cross Party Member Working Group be established to consider the options going forward.

The Leader of the Council reiterated that if the Council had not taken the approach it had in 2017 then there could have potentially been cuts to services and an impact on service delivery.  With regard contingency plans, over £10m had been saved in this period of time which was more than adequate to offset any MRP issues and mitigate any council tax increases and cuts to services.  He pointed out the level of cost pressures outside of the MRP affected all authorities and these would continue to be dealt with.  He reiterated that the proposal would not have been presented to Council if it was to have a detrimental effect on the financial position moving forward - he wanted to be part of a Council that continued to move forward financially, pragmatically and responsibly and said that revising the MRP policy was the responsible thing to do. 

The Leader of the Labour Group said that he was pleased that there had been an opportunity at the start of the term to place the Council on a better financial footing but expressed his concern that during ‘easier’ times, decisions were not being made for the long term future and the next administration may have to face cuts in services and would have to use the MRP to mitigate these issues.  He concluded by requesting that the option be revisited by a Cross Party Member Working Group in order to prevent debt being pushed onto future administrations.

A Member also said that he was pleased that that there had been no cuts services thus far but agreed that a Working Group should be established to consider the options going forward – he pointed out Working Groups previously were convened when there were any proposed major financial changes and this was one such change.

The Leader of the Council proposed that Option 1 be endorsed.  This Option was seconded.

The Leader of the Labour Group expressed his view that if policy revision was agreed, this would at the very least pass on debt to future generations.  Therefore, a dedicated Cross Party Member Working Group should be established in order that Members could gain a greater understanding and discuss the implications of the policy revision and debate options on the way forward, in line with the anticipated Welsh Government announcement on the Local Government Settlement on 22^nd December, 2021.  He, thereupon, proposed that Option 1 be endorsed.  This proposal was seconded.

A recorded vote was then taken in respect of the two Options.

In Favour of Option 1 – Councillors P. Baldwin, D. Bevan, M. Cross, P. Edwards, K. Hayden, H. McCarthy, M. Moore, J. C. Morgan, K. Pritchard, T. Smith, S. Thomas, H. Trollope, D. Wilkshire, B. Willis, L. Winnett.

In Favour of Option 2 – Councillors J. Collins, M. Cook, N. Daniels, D. Davies, G. A. Davies, G. L. Davies, M. Day, D. Hancock, S. Healy, J. Hill, W. Hodgins, J. Holt, J. Mason, C. Meredith, J. P. Morgan, L. Parsons, G. Paulsen, K. Rowson, B. Summers, G. Thomas, J. Wilkins.

The vote on Option 2 (preferred option) was, thereupon, carried.

It was noted that Councillor J. Millard joined the meeting during the voting process so, therefore, did not participate in the vote.

RESOLVED, subject to the foregoing, that the report be accepted and Option 2 be endorsed, namely that the change of the supported borrowing element of the MRP calculation from 2% straight line to a 50-year annuity basis and changing the unsupported borrowing element of the MRP calculation from an individual asset annuity basis to a weighted average annuity basis, be agreed.  This change to be applied from 1^st April, 2021.

The calculation of the MRP proposed in Option 2 was in line with the examples provided in the Welsh Government guidance on MRP.