Agenda item

To consider a report by Councillor Julian Thompson-Hill, Lead Member for Finance, Performance and Assets (copy enclosed) seeking Cabinet approval and recommendation of revisions to the MRP Policy for 2017/18 to County Council.

RESOLVED that Cabinet –

(a)       approve and recommend to County Council the revisions to the MRP policy for 2017/18 –

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on outstanding supported borrowing as at 31 March 2017.  The calculation will be the ‘straight line’ method over 50 years.  This represents a change from Option 1 (Regulatory Method) as approved by Council on 14 February 2017

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on Supported borrowing incurred on or after 1 April 2017.  The calculation will be the ‘straight line’ method over an appropriate number of years, dependent on the period of time that the capital expenditure is likely to generate benefits.  This also represents a change from Option 1

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on all capital expenditure funded from unsupported borrowing.  This represents a continuation of the approved policy,

(b)       approve the use of the cash saving in 2017/18 and the recurring budget saving from 2018/19 as set out in the latest version of the Medium Term Financial Plan and summarised below –

·         2017/18 Cash Saving – it is recommended that the cash saving of £1.861m is placed in the Budget Mitigation Reserve in order to help mitigate the effects of budget reductions in 2018/19

·         Ongoing saving of from 2018/19 – it is recommended to reduce the capital financing budget by £1.861m as part of the strategy to balance the 2018/19 budget.

Councillor Julian Thompson-Hill presented a report seeking Cabinet approval and recommendation of revisions to the MRP Policy for 2017/18 to County Council.

A review of the Council’s current MRP Policy had identified that by changing the method for making the MRP a significant saving opportunity would be delivered.  The proposed change also introduced a more equitable method for apportioning the costs associated with the capital programme.  Cabinet was guided through the technical information including different methodologies which could be adopted and reasoning behind the proposed revisions and conclusion that the most appropriate methodology would be to move to the asset life straight line which was essentially a repayment of assessed debt over 50 years.  The proposed change would release £1.861m cash saving in 2017/18 and an ongoing budget reduction of £1.861m.  The Head of Finance added that the revisions would impact better on future generations because the debt would be paid off.  It was a prudent method of dealing with MRP and had been based on a firm assessment of relevant assets.

The Lead Member and Head of Finance responded to specific issues as follows –

·        assurances were sought that future borrowing would not be constrained from 2033 when higher repayments were required.  It was explained that the debt was being spread over a longer period but would eventually be paid off and there would be peaks and troughs over that period but officers were confident that they were manageable in the overall scheme.  Further assurances were given that the methodology would not impact on the Council’s capacity in the future and the biggest risk to the authority was overall funding rather than reasonably marginal differences in the cost of servicing some of the historic debt

·        it was clarified that there would be an annual recurring budget saving and there would also be an in year cash saving in the current financial year by implementing the revisions at this point

·        with regard to the buyout of the County Hall PFI agreement it was explained that given the low borrowing rates it had cost the Council significantly less to buy themselves out of the agreement than to continue with it; a further saving had been made on the building’s upkeep and maintenance costs.

Cabinet welcomed the policy change as a means of cost saving in a way which did not negatively impact on services whilst also setting a prudent MRP policy as evidenced within the technical information.

RESOLVED that Cabinet –

(a)       approve and recommend to County Council the revisions to the MRP policy for 2017/18 –

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on outstanding supported borrowing as at 31 March 2017.  The calculation will be the ‘straight line’ method over 50 years.  This represents a change from Option 1 (Regulatory Method) as approved by Council on 14 February 2017

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on Supported borrowing incurred on or after 1 April 2017.  The calculation will be the ‘straight line’ method over an appropriate number of years, dependent on the period of time that the capital expenditure is likely to generate benefits.  This also represents a change from Option 1

·         Policy for 2017/18 – Option 3 (Asset Life Method – straight line) to be used for calculating MRP on all capital expenditure funded from unsupported borrowing.  This represents a continuation of the approved policy,

(b)       approve the use of the cash saving in 2017/18 and the recurring budget saving from 2018/19 as set out in the latest version of the Medium Term Financial Plan and summarised below –

·         2017/18 Cash Saving – it is recommended that the cash saving of £1.861m is placed in the Budget Mitigation Reserve in order to help mitigate the effects of budget reductions in 2018/19

·         Ongoing saving of from 2018/19 – it is recommended to reduce the capital financing budget by £1.861m as part of the strategy to balance the 2018/19 budget.