Peterborough plans £7m repeat of controversial capital receipts treatment

Peterborough City Council has revealed plans to use £7m of capital receipts to help balance its in-year revenue budget and 2020/21 spending proposals – despite controversy surrounding similar moves in previous years.

Last year MHCLG investigated Peterborough’s use of capital receipts to offset its minimum revenue position (MRP) charge after questions were raised about the lawfulness of the practice.

In 2017/18 the authority used the methodology to pay off loan debt with £4.1m of capital receipts; in 2018/19 it used £12.7m of capital receipts to pay off debt. Its 2019/20 budget proposed £10.6m in capital receipts for the same purpose. 

Room 151 subsequently reported that MHCLG and the Chartered Institute of Public Finance and Accountancy (CIPFA) were considering a review of the wording of the prudential framework to ensure clarity on the acceptable use of capital receipts.

But MHCLG said it would take no further action against Peterborough.

A report to a joint meeting of the authority’s scrutiny committees this week indicates that Peterborough is planning to use a further £3.1m of capital receipts to balance its current-year budget and £3.9m for its 2020/21 budget. 

Author Peter Carpenter, who is Peterborough’s acting head of corporate resource, said the proposals to use capital-receipts to pay down debt reflected the need to “ensure there is resilience with level of reserves the council holds” from the sale of further assets.

Carpenter referenced last year’s challenge over Peterborough’s use of the practice, but said it had been “agreed with government” that the authority did not act outside of the law.

“Whilst it is clear that MHCLG do not agree that this use is within the spirit of the legislation, there [have] been no updates or changes in legislation so far which prevents the council from continuing this practice in future financial years if capital receipts are available,” he said.

Defending its stance last year, the authority cited statutory guidance on MRP, revised in 2018, which covers the annuity method of calculating MRP provision.

The 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.”

Room 151 understands that MHCLG and CIPFA have discussed the potential for clarifying the prudential framework in relation to councils use of capital receipts. However, as Carpenter noted, there have been no recent updates.

The authority has also sought a capitalisation direction from the Ministry of Housing, Communities and Local Government (MHCLG) that would permit it to use almost £9m in capital funding to pay for “one-off redundancy and transformation costs” across the two financial years.

Peterborough’s request for an MHCLG direction to borrow almost £9m to fund its HR transformation programme was submitted last month, the report to this week’s joint scrutiny committees meeting said.

It said the move followed January’s launch of a voluntary-redundancy programme that would incur “significant one-off redundancy and transformation costs”. The report said that if the request were granted, £7.7m of the funding would been used in the current year and the remaining £1.2m in 2020/21.

Announcing Peterborough’s draft budget proposals last week cabinet member for finance David Seaton acknowledged that many of the savings and income measures were “one-offs and won’t deliver ongoing benefits”.

Council leader John Holdich said he had met with local government minister Luke Hall last week to discuss the borough’s financial situation, with the help of MPs Paul Bristow and Shailesh Vara.

“We were given more than an hour, much longer than is usually allowed, to explain our city, its challenges, how well our services perform and to put a strong case forward for fairer funding,” Holdich said.

“We also gained some knowledge about how government will approach fairer funding and how we should pitch our case.”