Covid-19 has put exceptional financial pressure on Local Councils. Cost have gone up (more PPE for care homes, more support for vulnerable residents, more laptops for home working staff) and income has gone down (lack of business rates, no-one is parking in the town centre, leisure centres have been closed, library fines have been waived). Central Government support has been forthcoming but for many authorities ultimately not enough. This article suggests some of the less painful steps local authorities can take towards closing the budget gap.
Review your MRP Policy*
If you haven’t looked at how MRP is calculated in your authority in the last few years now is the time to do so. Very significant savings can be made by altering the methodology for calculating MRP whilst still being prudent and adhering to the letter and spirit of published guidelines.
Stop Making Voluntary Revenue Provision (VRP)
Voluntary Revenue Provision is just that: voluntary. now may be the time to reconsider whether this is really needed in these very difficult times.
Use Capital Receipts Flexibly
Authorities in England, Wales and Scotland have some flexibility to use capital receipts to fund what would normally be regarded as revenue expenditure in this financial year and the next (2020/21 and 2021/22). Costs for what is described as ‘transformational’ activities such as setting up shared services or creating new ways of working can typically be included. If your authority is undertaking these activities now may be the time to consider funding them through capital receipts if you can.
Capitalise Interest for Assets Under Construction
If you are borrowing to fund capital expenditure the interest cost can be capitalised whilst the asset is still under construction. This little used accounting policy change may be able to help save you money when it is vitally needed.
Dispose of Assets You No Longer Need
Now is the time for being ruthless, having a ‘clear out’ and disposing of anything you no longer need. This can free up revenue resources elsewhere by purchasing new assets with these sale proceeds: or in some circumstances by being able to use the capital receipts flexibly or reducing your debt liability.
Draw Down Reserves
Now is the time to be dipping into your rainy day fund. Subject to certain restrictions councils are allowed to use reserves that have been built up to fund expenditure in any one year. In fact, historically councils have been criticised for hoarding too much money and being too careful: if this has in any way ever applied you now may be the time to put it right.
If you would like advice of assistance on any of the issues discussed in this insight, please contact Arlingclose on 08448 808 200 or at treasury@arlingclose.com.
* Loans Fund Repayments (LFR) Policy in Scotland.