Are you Missing Out on MRP Savings?

Minimum Revenue Provision (or Loans Fund Repayments in Scotland) is the local authority equivalent of depreciation – where local authorities must charge council tax payers over time for the cost of capital expenditure that has not been financed by grants, capital receipts or direct revenue contributions.

Like depreciation, there is no hard and fast definition of exactly how much and for how long a local authority benefits from a road or car or computer programme. There is therefore no hard and fast rules for how council taxpayers should be charged for these – it’s up to local authority accountants to set a policy. In setting this policy local authorities should refer to guidance published by their respective regional governments. Although there are some variances across regions typically a number of options are suggested the most common of which is to profile revenue costs across the life of the asset that has been purchased. The guidance by and large allows local authorities to choose their own methods, but there is an all important proviso that these methods must be prudent.

Guidance in England and Wales has been revised since it was first issued, largely to rule out what could be interpreted as the perhaps less than prudent policies of a small number of authorities. One change for example stated that MRP must be a cost – past overpayments could not be reversed to enable MRP to be negative and a source of income to the local authority.

We saw a flurry of activity in 2018 as many local authorities sought to re-assess their MRP policies to enable savings to be made on the charge levied to council tax payers whilst still remaining within the boundaries of the guidance. In many instances past policies were judged both expensive and less prudent – most commonly charging MRP at 4% a year on older pre-2008 balances which would result in MRP still being levied in 100 years’ time when the assets would long ago have ceased to be operational.

Two years on we believe there are still many local authorities who have not revised or examined their MRP policies for many years and who are still missing out on large savings. We view it as entirely possible to make savings whilst still being prudent and adhering to the guidance both in letter and spirit. At a time of continued pressure on local authority services a further review into this area could provide some welcome relief in keeping front line services up and running!

For more information please contact Laura Fallon at Arlingclose at lfallon@arlingclose.com or 08448 808 200.