Issue - meetings

Report by the Chief Finance Officer.

17.1     The Chief Finance Officer introduced the report and outlined the background and accounting regulations for the Minimum Revenue Provision (MRP). MRP is a charge to the revenue account that reflects the cost of borrowing incurred for a capital asset that is delivering services/adding value in a financial year. The report detailed a number of ways by which MRP could be calculated under previous and current accounting regulations. The report outlined the opportunity to change from the current straight line methodology to an annuity basis, which better reflects the use of the asset over time and the changing value of money.

17.2     The views of the Committee were sought and these would be taken into consideration during the RPPR process and whilst refreshing the Treasury Management Strategy. The Committee will have the opportunity to revisit the issue of MRP when the Treasury Management Strategy was considered by the Committee in November 2018.

17.3     The Committee discussed the MRP calculation method and noted that the current repayment method favours future tax payers. If an annuity method is adopted, ultimately the amount paid is the same but the phasing is different. In the earlier years the MRP payment is less, but in the later years the payment is more. The Committee asked if there was a disadvantage in changing to an annuity method.

17.4     The Chief Finance Officer responded that the report illustrates how the repayment may change over time, but it is difficult to say what the repayment will be in the future, as capital needs and financing will change over time. The MRP is an accounting charge and changing to the annuity method would be more reflective of the time value of money (i.e. it reduces over time). The Chief Finance Officer clarified that the application of the MRP calculation happens as part of the annual Statement of Accountants. The external auditors as part of the year end audit process will assess the reasonableness of the MRP policy applied, within the context of the overall accounts.

17.5     The Committee discussed whether to recommend a change in the MRP calculation method in response to recommendation 3 of the report. The Committee supported a change to the annuity method as it is appropriate on an intellectual and practical basis. In doing so, the view of the Committee would be taken into consideration as part of the RPPR process. Any change to the MRP calculation basis would be part of the Treasury Management Strategy, and need approval of Cabinet and Full Council in due course.

17.6     The Committee RESOLVED to recommend a change to the annuity calculation method for MRP, for inclusion in the RPPR process and approval by Cabinet and Full Council.