Report of the Head of Finance, Property and Revenue Services
To
Audit Committee
On
14 February, 2014
MINIMUM REVENUE PROVISION (MRP) STRATEGY FOR 2014/2015
1. SUMMARY
1.1 The MRP Strategy complements the wider financial picture which aims to provide transparency as to the cost to the Council of taking on new borrowing , therefore linking into the Council’s prudential indicators, the overall management of the Council’s assets and the move towards international accounting standards.
1.2 This report does not seek approval for any borrowing to be incurred by the Council at present, as per the Capital Programme 2014/2015. If circumstances arise during the financial year that require the Council to consider potential borrowing, a separate report will be presented by the relevant department at the time.
1.3 It is the Audit Committee’s function, as set out in the Council’s
Constitution, to undertake a review of the content and operation of the
Minimum Revenue Provision (MRP) Strategy prior to its submission to
Council.
Key Decision This report has been included on the forward plan, and represents a key decision as the recommendations contained within will impact on future reports taken to Council seeking approval for borrowing.
Due to the technical nature of this report a Glossary of Terms has been provided in Appendix 2 in order to explain some of the terms used.
2. RECOMMENDATIONS
To be recommended to Council:
(i) That the Annual MRP Strategy be approved and implemented from the
1 April 2014, specifically:
 Option 1(“Regulatory Method”) be used to calculate the MRP on any future supported borrowing


Option 3 (“Asset Life Method”) be used to calculate the MRP in the case of any future unsupported borrowing
(ii) That all future reports considered at Council which involve borrowing to support capital expenditure (excluding HRA schemes) contain an assessment of additional MRP costs as this will have an impact on future revenue budgets.
3. BACKGROUND
3.1 Since changes in the Regulations surrounding the C ouncil’s Minimum
Revenue Provision (MRP) calculation, a report is now necessary to seek approval from full Council on the annual MRP strategy.
3.2 MRP is the annual revenue provision that authorities which are not debt free have to make in respect of their debts and credit liabilities.
The requirement to make MRP has existed since 1990. MRP only relates to borrowing undertaken on non-HRA capital schemes.
3.3 Under the Local Authorities (Capital Financing and
Accounting)(Amendment)(England) Regulations 2007 a general duty is placed on local authorities to make an amount of MRP which is considered to be prudent, with the responsibility being placed upon full
Council to approve an Annual MRP Strategy each year.
3.4 The 2007 Regulations require that an Annual MRP Strategy be adopted by Council prior to the start of each financial year. The
Council can change the method of calculating MRP on an annual basis
(subject to the constraints set out below). Once a method has been approved for a particular year, any assets purchased through borrowing that year must continue to have MRP charged in the same way (that is, the Council can not change the method of calculating
MRP on individual assets).
4. OPTIONS AVAILABLE
4.1 Four options are outlined within the 2007 Regulations for Councils to follow as to the calculation of MRP, however there are certain factors which predetermine the option the Council must adhere to, depending whether the borrowing is supported or unsupported:
4.2 Option 1 (“Regulatory Method”) and Option 2 (“Capital Financing
Requirement (CFR) Method“) can only be used to calculate the MRP in the following circumstance:

Supported borrowing, excluding HRA borrowing for capital expenditure.

4.3 Option 3
(“Asset Life Method”) and Option 4 (“Depreciation Method”) – can only be used to calculate the MRP for new schemes that require the Council to take on unsupported borrowing, excluding HRA borrowing for capital expenditure.
4.4 The preferred option for the Council is option 1 and option 3.
4.5 Appendix 1 shows how the MRP figure is calculated under each of the options discussed above.
5. BUDGET/RESOURCE IMPLICATIONS
5.1 There would be no financial implications to the Council of applying
Option 1 (“Regulatory Method”) to existing borrowing against capital expenditure, as there is no departure from the current method of calculation. Sufficient resources therefore exist within the three year budget to meet the current revenue commitment (assuming current borrowing levels, and that no further supported borrowing is taken on by the Council).
5.2 If the Council takes out any further borrowing, whether supported or unsupported, resources will need to be built into the budget to meet the additional MRP requirement for that borrowing. By including the associated MRP along with potential borrowing requirements in any future Capital Programme reports, future commitments on the revenue budget will be highlighted (which will have to be met); this will enable members to make informed decisions when considering taking on additional borrowing to support capital schemes.
6. RISK ASSESSMENT OF RECOMMENDATIONS AND OPTIONS
Risk Risk Assessment Risk Management Risk
Level
Low Insufficient
MRP provided for in the
Council’s budget
Any new borrowing that the Council takes out will incur an MRP charge in the revenue budget which will specifically relate to the asset acquired or enhanced. This ‘charge’ will need to be built into the revenue budget to ensure the Council has sufficient resources available to meet the liability.
All new capital schemes require a report being submitted to Council for approval. By including an assessment of MRP (as per the recommendation within this report) there will be an early indication as to any future MPR liability which can be built into the budget accordingly.

7. ALIGNMENT TO COUNCIL PRIORITIES
7.1 The recommendations set out in this report ensure the effective financial management of the Council, and is aligned to meeting all of the Council’s priorities.
8. IMPLICATIONS RELATING TO RELEVANT LEGISLATION
(a) Relevant Legislation – The requirements set out in this report adhere to the Local Authorities (Capital Financing and
Accounting)(Amended)(England) Regulations 2007, which replace the
2003 Regulations.
(b) Human Rights
– No impact
(c) Equality and Diversity – No impact
(d) Climate change and environmental sustainability – No impact
(e) Crime and disorder
– No impact
(f) Budget/Resources – There are no budget implications resulting from the approval of this report. If borrowing is taken out in future, there will be an impact on the revenue budgets; as such any reports considering borrowing will need to take into account the MRP.
9. COMMENTS OF STATUTORY OFFICERS
(a) Head of Paid Service
– No specific comments
(b) Deputy Monitoring Officer – No specific comments
(c) Section 151 Officer
– The financial implications are explained within the body of the report.
10. CONSULTATION
Consultation has been provided from the Financial Advisory Network
(FAN) a subsidiary of the Chartered Institute of Public Finance and
Accountancy (CIPFA).
11. BACKGROUND PAPERS
None.

Report Author - Eve Allsop
Designation - Financial Services Manager
Telephone
E-mail
- 01623 463031
- eallsop@mansfield.gov.uk

Appendix 1
Future supported Borrowing and any Previous Borrowings
Option 1 (“Regulatory Method”) – This is the method currently used by the
Council, as set out in the 2003 Regulations. Option 1 is calculated as 4% of the total Capital Financing Requirement for all borrowing, excluding HRA borrowing less Adjustment A:
4% (CFR – HRA – AA)
Where:
CFR = Capital Financing Requirement
HRA = HRA borrowing
AA = Adjustment A
Option 2 (“Capital Financing Requirement (CFR) Method”) – this uses the same formula as Option 1 but does not take account of Adjustment A.
4% (CFR – HRA)
Where:
CFR = Capital Financing Requirement
HRA = HRA borrowing
Once calculated Adjustment A remains a fixed variable within the calculation; in the case of Mansfield District Council Adjustment A is £491,000 meaning that the MRP calculated under Option 1 will always be £19,640 (4% of
£491,000) less compared to Option 2.
The following demonstrates the different MRP calculated under Option 1 and
Option 2 based on the Council’s Capital Financing Requirement for
2010/2011:
Total Capital Financing Requirement for 2012/2013 is £106,517,000
HRA borrowing at 2012/2013 is £89,941,000
Adjustment A is £491,000
MRP
2011/2012
Option 1 Option 2
£643,400 £663,040
Unsupported Borrowing
Option 3 (“Asset Life Method”) – The MRP for each asset acquired through unsupported borrowing is calculated using the following formulae:
A
– B
C

Where:
A = Capital expenditure (unsupported borrowing) on asset
B = Total MRP already made against the asset
C = Remaining useful life of the asset
Option 4 (“Depreciation Method”)
- The MRP for each asset acquired through unsupported borrowing is calculated using the following formulae:
A – B – D
C
Where:
A = Capital expenditure (unsupported borrowing) on asset
B = Total MRP already made against the asset
C = Remaining useful life of the asset
D = Residual Value of the Asset
An assessment has been undertaken as to which prudent MRP calculation method to adopt from 2012/2013 onwards. It is considered more straightforward at this stage to adopt option 3 using the asset life method.

Appendix 2
Adjustment A – Accounting adjustment to ensure consistency with previous
Capital Regulations
Capital Financing Requirements – Amount needed to finance the Council’s
Capital Programme from previous years (borrowing) and current years (capital receipts, grants etc.)
Prudential Indicators – In order to asses the Council’s ability to afford borrowing when making capital financing decisions and to ensure that prudent levels are set. These indicators show the projected and actual position together with limits which can only be exceeded with approval and in exceptional circumstances
Supported Borrowing – Borrowing for which the Government will provide support through the Revenue Support Grant to meet the cost of borrowing for capital projects
Unsupported Borrowing – Borrowing for which the Government will not provide support through the Revenue Support Grant to meet the cost of borrowing for capital projects