Peterborough capital receipts episode prompts prudential framework review
The government is to consider changes to the prudential framework covering local authority finances to prevent a repeat of the controversy over Peterborough City Council’s use of capital receipts.
In March, an article on the Huffington Post website raised the question of whether the authority had acted illegally by using capital receipts to offset its annual minimum revenue provision (MRP) charge rather than the total amount of borrowing.
The department this week announced it would not take any further action against the authority but said it would be taking a close look at the wording of the current rules.
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In a statement, the Ministry of Housing, Communities and Local Government (MHCLG) said: “The examination of this issue as specifically regards Peterborough Council has now concluded.
“The department is not taking any further action regarding Peterborough City Council at this time.”
But it added: “In keeping with the department’s policy responsibility for the prudential system and stewardship role of the local government finance system, it will consider in discussion with the Chartered Institute of Public Finance (CIPFA) whether clarification of the framework is now needed to ensure local authorities’ practices meet its intent and objectives.”
A spokesperson for CIPFA confirmed it would be discussing the matter with government officials but would not comment any further.
It is understood that officials looking into the Peterborough case concluded that the authority had not contravened the letter of the current framework, but had some concerns over whether the spirit of the rules had been followed.
Peterborough’s Medium Term Financial Strategy, approved in March, provides for £10.6m in capital receipts to offset MRP provision in 2019/20.
In 2018/19 it used £12.7m using the methodology and £4.1m the previous year.
At the time, the council said its approach had been backed by a legal opinion from a QC.
The council, cited statutory guidance, revised last year, which covers the annuity method of calculating MRP provision.
This guidance states: “Adjustments to the calculation to take account of repayment by other methods during repayment period (e.g. by the application of capital receipts) should be made as necessary.”
The authority this week said it was “pleased but unsurprised” that the government has decided not to take further action.
A statement said: “In our view, this means that the way we have used capital receipts to safeguard vital services for the people of Peterborough was allowed within existing financial frameworks/legislation.
“This view was supported by two sets of experienced auditors and the legal advice that we took.”
A spokesperson said the council had always been open and transparent about the use of capital receipts to repay MRP.
The statement said: “Taking this approach has allowed us to address gaps in our budget as we face the most severe cuts to government funding in the council’s history – allowing us time to work on longer term sustainable budget options.”