Question 1
Do the revised Regulations meet government’s objectives as set out in this consultation? Please provide details to support your answer.
This would appear to be the case. However, as outlined in the general comments above, this is where interpretation by accounts preparers and auditors will be crucial. Notice should therefore be taken of responses from technical experts in local authorities who will be using the new documents directly.
Question 2
In your view, do the most recent amendments to the Regulations as set out in this consultation document give rise to any unintended consequences or new risks? Please provide details to support your answer.
Assuming there are no problems with interpretation, it is our view that, as these revised proposals are in line with those made in the second consultation in 2022, they have been drafted to address the unintended consequences that would have arisen if the original proposals for 2021 had been implemented.
The original consultation in 2021 identified a potential revenue cost on local authority budgets in the year of implementation of £700 million. As we noted in our earlier response, this is a significant sum and one likely to impact unevenly across the sector. Many councils that will be affected have acted in good faith on the basis of the current regulations and believe they have followed prudent accounting practices. The implications for these councils are potentially devastating for local public services. We suggested that mitigation arrangements should be put in place, including a recommendation that the implementation only applies to new debt funded assets for which new debt was taken out after the new regulations come into effect. We also called for work to be undertaken to ensure this cost is fully understood, including identifying which authorities are affected and by how much before the changes are implemented.
Question 3
Do you agree with the additional guidance on what should be included in the MRP Statement? Please provide details to support your answer.
The proposed guidance (para 31) states that it does not provide “prescriptive requirements” on the content and format of the statement and then immediately lists six items that the statement should contain “as a minimum”. This is confusing. If the guidance specifies minimum requirements it should not state that it does not “provide prescriptive requirements” as it is not then clear whether those “minimum requirements” are “prescriptive” and have to be followed.
Question 4
Is the guidance sufficiently clear that MRP must be determined with respect to total CFR, less only those elements of CFR permitted by statute? Please provide details to support your answer.
The use of CFR (Capital Financing Requirement) is clearly stated. It is clear that the calculation of the CFR is as specified in the CIPFA Prudential code.
Question 5
Is it clear that authorities must not exclude any portion of CFR from the determination of the MRP charge on the basis that the CFR is associated with an investment asset? Please provide details to support your answer.
This is made clear in paragraph 37 of the guidance.
Question 6
Is the list of circumstances where the MRP charge may be determined to be £nil sufficiently clear and complete? Please provide details to support your answer.
Question 7
Is the revised Guidance clear on how HRA CFR should be treated with respect to determining an MRP charge? Please provide details to support your answer.
Question 8
Does the revised Guidance address concerns that changes to the Regulations might require additional MRP for the HRA CFR? Please provide details to support your answer. Question 9. Is the revised Guidance clear on how capital receipts may be used to reduce the CFR, and therefore the MRP charge?
- (a) MRP need not be made with respect to capital loans provided they are not commercial capital loans?
- (b) MRP must be made with respect to commercial capital loans?
Questions 6 to 11 all seek to check whether the wording in the guidance is sufficiently clear on what is required for various aspects of the MRP charge. These are all crucial to the success of the implementation of the new guidance and regulations. In particular the treatment of capital receipts in relation to MRP and the position of commercial loans need to be completely clear; in our response to the original consultation we had highlighted unintended consequences of the original proposals for these. The new proposals do seek to address these unintended consequences and in our opinion they are set out in a reasonable way and the requirements are clear. However, as noted in the comments made above, account should be taken of the views of technical experts in local authorities who will be using the guidance.
Question 12
Taking into account both the draft amendments to the Regulations and the revised Guidance, is it clear what constitutes a commercial loan?
This should be made clearer by using the same terminology for commercial investments that is used in the CIPFA Prudential code, the CIPFA Treasury Management Code and in HM Treasury’s PWLB guidance. That would make it clear that the definitions align and help avoid confusion.
Question 13
Does the revised Guidance sufficiently explain how repayments of a capital loan, which are capital receipts, may be used to directly offset the relevant MRP charge (as a statutory exception to the general rule that capital receipts cannot be used to offset MRP)?
Question 14
Does the revised Guidance sufficiently explain: (a) the requirement to include in the MRP charge an amount for any expected credit loss or actual loss with respect to a capital loan? (b) the circumstances where the MRP charge may be lower than the recognised loss?
These both appear to be clear, however, as noted in the comments made above, account should be taken of the views of technical experts in local authorities who will be using the guidance.
Question 15
Please provide any further comments you have on the revised Guidance or amendments to the Regulations.
Please see comments made in the introduction, above. In particular, the proposals will make the regulations and guidance more complex and local authorities will need supporting accordingly. The implementation date of 2024 is going to cause local authorities problems. While we appreciate that the revised proposals deal with the concerns with drafting that we raised in the first consultation in 2021, the potential additional revenue cost of £700 million has not been addressed. Question 16. Consider the changes to the Regulations and the Guidance. Will these result in a change to your MRP charges in future years?
Question 17
Where possible, please provide an estimate as to the increase or decrease in your authority’s MRP charge. Assume the revised changes come into effect from April 2024. Please provide an absolute value and percentage.
Question 18
Will the changes result in an adverse impact on your authority’s financial sustainability or ability to deliver services? Please provide details.
Questions 16, 17 and 18 are all questions for individual local authorities to answer. However, in terms of practical impact in 2024/25 we would draw attention to the comments made in the introduction (above) that the time available to implement is such that it will cause difficulties if implementation goes ahead in in 2024/25 and that a deferral to 2025/26 would help avoid problems.