Appendix L - Statement of Policy on the Minimum Revenue Provision

Statement of Policy on the Minimum Revenue Provision

Introduction

When capital expenditure is financed by debt, the Council must put aside resources to repay that debt in later years. The amount charged to the revenue budget for the repayment of debt is known as the Minimum Revenue Provision (MRP). The MRP charge is the means by which capital expenditure which has been funded by borrowing is paid for by council taxpayers.

The statutory requirement is for local authorities to make a prudent level of provision and the government has issued statutory guidance which local authorities are required to 'have regard to' when setting a prudent level of MRP. The guidance gives local authorities the freedom to determine what would be a prudent level of MRP.

The statutory guidance recommends that local authorities draw up a statement of their policy on the MRP, for approval by full council in advance of the year to which it applies.

MRP Policy

Capital expenditure incurred before 1 April 2008 - MRP will be charged in equal instalments over a 50- year asset life. The 50 year repayment period is considered a reasonable average assumption for the lives of the assets funded by this expenditure.

Capital expenditure incurred after 31 March 2008 - the Council will charge MRP based on the expected useful life of the relevant asset in equal annual instalments. This method may be reviewed in the future and the option to charge MRP based on an annuity asset life method may be taken if it is deemed to be prudent.

For capital expenditure incurred on the Council led Cinema and Leisure Scheme (Animate), MRP will be determined by charging the principal repayment on an annuity basis, over the assets useful life, with an annuity rate equivalent to the average relevant PWLB rate for the year of expenditure.

The annuity asset life method takes account of the time value of money (whereby paying £100 in 10 years' time is less of a burden than paying £100 now). The annuity asset life method matches the repayment profile to show how the benefits of the asset financed by borrowing are consumed over its useful life. As MRP is not required by the government guidance to be charged until the asset is in use, the development period will not result in an MRP charge to the Council.

For assets acquired by leases MRP will be determined as being equal to the element of the rent or charge that goes to write down the balance sheet liability.

For capital expenditure loans to third parties that are repaid in annual or more frequent instalments of principal, the Council will make nil MRP, but will instead apply the capital receipts arising from the principal repayments to reduce the capital financing requirement instead.

In years where there is no principal repayment, MRP will be charged in accordance with the MRP policy for the assets funded by the loan, including where appropriate, delaying MRP until the year after the assets become operational. This is thought to be a prudent approach since it ensures that the capital expenditure incurred in the loan is fully funded over the life of the assets.

Capital expenditure incurred during 2023/24 will not be subject to a MRP charge until 2024/25 or later.

Based on the Council's latest estimate of its capital financing requirement (CF) on 31 March 2023, the budget for MRP has been set as follows: