Survey response: Minimum Revenue Provision post-consultation proposal

In our response to the original consultation we raised serious concerns that the proposals could have unintended consequences, for example affecting councils’ ability to invest in infrastructure and housing via wholly owned companies and have serious impacts on some councils’ revenue budgets.


About the LGA

The Local Government Association (LGA) is the national voice of local government. We are a politically led, cross party membership organisation, representing councils from England and Wales.

Our role is to support, promote and improve local government, and raise national awareness of the work of councils. Our ultimate ambition is to support councils to deliver local solutions to national problems.

This response has been cleared by the lead members of the LGA’s Resources Board.

General points

In our response to the original consultation we raised serious concerns that the proposals could have unintended consequences, for example affecting councils’ ability to invest in infrastructure and housing via wholly owned companies and have serious impacts on some councils’ revenue budgets. Overall we are of the view that the revised set of proposed regulations address the main concerns that we raised. This point is also made as the response to question 12.

Individual questions

Question 1. Do you agree with the proposal that capital loans may be exempt from the need to charge MRP?

We agree that this part of the proposals meets one of the concerns we raised in our original response.

Question 2: Does the proposed wording in Annex A sufficiently represent the policy intent as described?

We believe it does, although confirmation should be sought through further legal advice that the wording does not lead to any unintended consequences.

Question 3: Do you agree that authorities should make MRP equal to any loss recognised with respect to a capital loan?

We did not cover this in our original response, but this seems to be reasonable in the light of the proposal mentioned in question 1.

Question 4: Do you agree that using IFRS 9 as the basis for measuring the expected credit loss or impairment that must be charged as MRP is appropriate?

We agree that the measurement of any expected credit loss or impairment in this case should be done according to fair value.

Question 5. Does the proposed wording in Annex A sufficiently represent the policy intent as described?

We believe it does, although confirmation should be sought through further legal advice that the wording does not lead to any unintended consequences.

Question 6. Do you agree that authorities should be able to use capital receipts that are loan repayments (including the capital receipt element of a lease payment) to directly reduce the prudent charge to revenue?

We agree that this proposal meets one of the concerns we raised in our original response.

Question 7. Does the proposed wording in Annex A sufficiently represent the policy intent as described?

We believe it does, although confirmation should be sought through further legal advice that the wording does not lead to any unintended consequences.

Question 8. If you identified risks to service delivery, including the delivery of housing or other local priorities, as a result of the original proposal, does this amended proposal sufficiently mitigate or remove those risks?

This was a concern we raised in our response, and we believe the new proposals mitigate the risks identified.

Question 9. If you identified financial pressures as a result of the original proposal, does this amended proposal sufficiently mitigate or remove those risks?

This is a question for individual councils to answer.

Question 10. Assume that this amended proposal becomes effective from April 2023. What, if any, would be the increase to your MRP charge in 2023/24 as a result of these changes?

This is a question for individual councils to answer.

Question 11. The plan is to introduce these changes from April 2023. Please indicate if you agree with this timetable. If you do not agree, please set out the reasons.

In our original response we suggested that a phasing in of, or a delay to, the changes would be an option to partly mitigate the concerns raised. However, since the revised proposals mitigate the concerns more widely, implementation from April 2023 seems to be reasonable, providing that the revised proposals can be finalised and confirmed quickly enough to give councils enough time to plan their implementation. Question 12. Please add any further comment on the proposals.

In our response to the original consultation we raised serious concerns that the proposals could have unintended consequences, for example affecting councils’ ability to invest in infrastructure and housing via wholly owned companies and have serious impacts on some councils’ revenue budgets. Overall we are of the view that the revised set of proposed regulations address the main concerns that we raised.

Contact

Bevis Ingram, Senior Adviser (Finance)

Email bevis.ingram@local.gov.uk