Meeting: County Council (County Hall, Durham - Council Chamber - 26/06/2008 10:00:00 AM)
Item: A3 Minimum Revenue Provision (MRP) - Local Authorities Capital Finance and Accounting (England) (Amendments) Regulations 2008
Purpose of the Report
1 To approve the methodology for calculating Minimum Revenue Provision (MRP) for 2007/08 and 2008/09 and to provide information on the Local Authorities Capital Finance and Accounting (England) (Amendments) Regulations 2008.
Background
2 The Secretary of State has now made the Local Authorities Capital Finance and Accounting (England) (Amendment) Regulations 2008 effective from 31 March 2008, which include changes to the capital finance system.
3 The 2008 Regulations (Statutory Instrument 414 of 2008) is attached at Appendix 2.
4 The regulations relating to MRP require authorities to make a prudent provision for debt repayment. CLG have provided statutory guidance outlining what this means in practice.
5 The Secretary of State recommends that a statement of the methodology to be used by authorities be approved by the full Council before the start of each financial year. For 2007/08 and 2008/09 this should be done as soon as possible in 2008/09.
6 For 2007/08 authorities have the choice of continuing to use the previous methodology or adopting one of the options in the guidance.
Minimum Revenue Provision (MRP)
7 Previously year local authorities were required to set aside some of their revenue as provision for repayment of debt. MRP was calculated each year and is required to be a minimum of 4% of capital financing requirement at the start of the year. In addition, an authority could voluntarily set aside amounts in excess of the minimum required.
8 These rules have now been replaced with a duty for an authority to provide for an amount of MRP which it considers to be “prudent”. CLG has issued guidance on MRP and this is attached at Appendix 3. The regulations do not define “prudent provision”, however the CLG’s MRP guidance does make recommendations to authorities on the interpretation of the term.
9 The guidance explains that the broad aim of prudent provision is to ensure that debt is repaid over a period that is reasonably close to the time over which the capital expenditure will provide benefits. In the case of borrowing supported by Government through the Formula Grant System, it would be reasonable to link the period of making provision broadly with that used in the calculation of the grant, which is 4% of the estimated supported capital expenditure and 4% equates to the repayment of debt over 25 years.
10 The operative date of the change is 31st March 2008 meaning it applies to financial year 2007/08 and subsequent years.
11 MRP should normally start in the financial year following the one in which the expenditure was incurred.
Options for Prudent Provision
12 Four options for prudent provision are detailed in the CLG guidance at Appendix 3.
26-06-08 - Appendix 2 - LA Capital Financing Regs 2008.pdf;
26-06-08 - Appendix 3 - Guidance on MRP.pdf;
Minimum Revenue Provision.pdf