Minimum Revenue Provision or ‘MRP’ is a local authority specific way of spreading the cost of capital expenditure over an asset’s life. It is a bit like depreciation, but there are also many differences between MRP and depreciation. I should add that Scottish authorities do not have MRP, but do have a similar loans fund repayments system.
Authorities must write an annual MRP policy to say how they will make MRP. How they make MRP must be in line with published ‘MRP guidance’ in their region; with an overarching requirement that MRP must be charged ‘prudently’ and with the general principle of aligning MRP charges to when the asset is providing a benefit. After the MRP policy is written, authorities must make sure they calculate MRP according to their policy and charge the correct MRP for every financial year. Like many things this is often easier to say than to do. MRP calculations are typically on big, complicated spreadsheets that have been passed down and added to by many people over the years. As a job you usually only do once a year, it also requires you to remember how to do it again over and over.
Considering this, if you haven’t reviewed your MRP policy and MRP calculations recently it really may be worth doing. Below we outline the main reasons why it may be a good idea to give your MRP a bit of an MOT:
Making sure you’re calculating MRP correctly
As inferred above there is a lot that can potentially go wrong with a big complicated spreadsheet that’s been passed down between various people over the last 15 years. A mistake in one year is not ideal: what can be especially disadvantageous is a mistake which gets copied, multiplying with every subsequent year. For many authorities the MRP charge is a considerable figure, so the last thing you want is to be accidently making too much MRP because of a spreadsheet error or other mistake. Reviewing your calculations should prevent this.
Of course, unfortunately this can backfire and sometimes you may find you have accidently been making too little rather than too much MRP. However we would definitely not see this risk as a reason to never check your MRP and assume it’s all perfect. The worst thing that can happen is that a mistake gets spotted by an auditor down the line and the authority is forced to put in a huge one-off correction charge for this. This is not just an abstract concept: errors in MRP have in part been the reason behind some of the Section 114 notices issue recently. It is much better to spot errors yourself and create an affordable plan to put them right.
Making sure your CFR calculations reconcile
MRP is made on the ‘Capital Financing Requirement’ or ‘CFR’, excepting where there are aspects of the CFR where regulations clearly state that MRP does not have to be made. If you’re not calculating your CFR correctly you’re thus probably not calculating MRP correctly either. One straight forward check on the CFR is to make sure that the CFR calculated from your balance sheet is the same as the CFR calculated incrementally from last year’s CFR in the Capital Financing note to your accounts. If you have not done this recently it is a must do reconciliation!
Making sure you are making MRP on the whole CFR
For most things MRP is required so as to reduce the CFR to zero over time. However there are exceptions: these include the adjustment A, where capital receipts can be used to write down the CFR instead of MRP, or in England MRP does not need to be made on the HRA CFR. It should thus be possible to examine your MRP calculations to make sure that the CFR is fully being provided for in future, or where it is not that there are clear and allowable reasons for this.
If you are making more MRP than your current CFR this is a sure sign that you are making more MRP than you need to, which you will very much want to avoid! Of course the opposite can also be true, but it is best spotted early and corrected for rather than be left to continue.
Making sure you are splitting out the General Fund and HRA correctly
If you are an authority with a Housing Revenue Account or ‘HRA’ you will be required to calculate separate CFRs for the general fund and HRA. This is in part so that MRP is calculated correctly, as different MRP rules apply to these. Correctly calculated CFRs also mean that interest income and notional intra-general fund-HRA loans are appropriately charged as part of your Item 8 debits and credits. A correct HRA CFR calculation is needed to ensure access to the lower HRA PWLB rate.
HRA accounting can often be complex. Particular difficulties can arise in accounting for ‘appropriations’ where assets are moved between the general fund and HRA. Mistakes should as far as possible be spotted to prevent the general fund (illegally) subsidising the HRA, or the other way round.
Optimising your MRP policy
Authorities have a lot of choices as to how they make MRP. It’s not the same as the old days where central government effectively told you how much MRP to charge each year. In particular authorities can choose whether to make MRP on a straight line or annuity basis for MRP made over an asset’s life. Although four options and a suggested option for leases are given in the guidance, authorities can also choose other methods that suit them, provided that they are prudent. This can mean better aligning MRP to when as asset is providing a benefit: by for example making MRP in line with asset life rather than contract length for a leased asset.
Whilst substantial revenue savings can often be made by changing your MRP policy, this does not mean the only reason to make MRP policy changes is to make the biggest up front savings possible. Indeed in England MRP guidance now stipulates the primary objective of a policy change cannot be to reduce the MRP charge. However we believe that many changes, including the annuity method, allow for a more prudent profiling of overall costs as well as making savings. It is appropriate to reconsider your MRP policy periodically to make sure it is working for you: if your policy was set in 2008 and has never changed, it may no longer all be relevant to the authority’s current circumstances.
For assistance in reviewing your authority’s MRP please contact the Arlingclose Team at info@arlingclose.com or on 08448 808 200.
09/03/2026
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