• Home
  • About
  • Subscribe
  • Conference
  • Events Calendar
  • Webcast151
  • MOTB
  • Log In
  • Register

Room 151

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews

Statutory overrides: extend or make permanent, but do it soon

0
  • by David Green
  • in 151 News · Blogs · David Green · Treasury
  • — 25 Nov, 2020

Photo by Kevin Ku on Unsplash

David Green writes that the alternative to extending statutory overrides will be “no good for local or central government, nor their taxpayers”.

Local authorities are drawing up their revenue budgets and setting their council tax for the 2021-22 financial year in turbulent economic times. The balanced budget requirement means that the difference between “robust” estimates of revenue income and expenditure must be made up with either higher council tax or withdrawals from revenue reserves, providing always that reserves remain “adequate” to cover unexpected additional expenditure or lower than expected income.

In the current economic climate, there is much more uncertainty about the future, and the adequacy of reserves to cover unexpected items will need to be reviewed. If reserves need to be increased then either expenditure must be cut or council tax increased, neither of which are particularly welcome in a recession.


12th Local Authority Treasurers Investment Forum & FDs’ Summit
NOW A VIRTUAL EVENT + ZOOM151 Networking
Jan 20, 21 & 22, 2021


IFRS

Income and expenditure are mainly determined by International Financial Reporting Standards (IFRS), but local government benefits from several statutory overrides that reduce the uncertainty in the revenue budget that might arise from financial markets. For example, the cost of restructuring loans following a change in interest rates can be spread over the term of those loans.

Also, impairments and revaluation losses on property and shareholdings don’t count as revenue expenditure, irrespective of whether they are held to provide local public services or as investments. The quid pro quo is that revaluation gains don’t count as revenue income either. The same applies to gains and losses incurred on all types of pension fund investments, including pooled funds.

There is also a statutory override for gains and losses on pooled investment funds held outside of a pension fund. This was introduced in 2018 following a change to IFRS. At the time, government said it felt it was inappropriate for revaluations to “impact on the balanced budget requirement or on the quantum of funds available to support delivery of services.” But this particular override is time-limited and is due to expire in April 2023.

Of course, come 2023, it is highly likely that it will remain inappropriate for public service expenditure budgets and council tax to be set according to the vagaries of the financial markets. Government may have been hoping that authorities would use the five-year override period to slowly sell out of their pooled investment funds, but their own statistics show the opposite. With cash interest rates now very close to zero, and government, CIPFA and the press shouting loudly against direct investment in property, it’s hardly surprising that local authorities are looking to well managed and highly diversified pooled investment funds that pay between 3% and 7% income each year.


Room151’s Monthly Online Treasury Briefing

November 27th, 2020
Money market funds and deposit accounts
Watch the recording here


Pressure

On the other hand, government may have been hoping that local authorities would cut service expenditure or raise council tax to increase their reserves to a level adequate to manage the risk of valuation losses. We have certainly supported authorities placing some of the additional income earned from pooled investment funds into a treasury risk management reserve. But the coronavirus pandemic has put so much pressure on local government finances that building up reserves is no longer feasible for most. You don’t put money aside for a rainy day when you’re being soaked by a thunderstorm.

Government has a long history of extending time-limited statutory overrides, but only late in the day. The 2018 regulations introducing the pooled funds override also extended the equal pay override for the fourth time. We think government will have little practical option except to extend or make permanent the pooled fund override too. Local authorities would prefer to hear that decision sooner rather than later. The alternatives of selling their highest yielding investments, raising council tax or cutting local public services will be no good for local or central government, nor their taxpayers. The sooner government acts to sort this out, the better.

David Green is strategic director at Arlingclose Limited.

Photo by Kevin Ku on Unsplash.

FREE monthly newsletters
Subscribe to Room151 Newsletters

 Monthly Online Treasury Briefing
Sign up here with a .gov.uk email address

Room151 Webinars
Visit the Room151 channel

Share

You may also like...

  • The ECB and Euroland The ECB and Euroland 4 Feb, 2012
  • News round-up: Bank ratings, audit body named, business rates, Scottish business rates, RTB regulations delay News round-up: Bank ratings, audit body named, business rates, Scottish business rates, RTB regulations delay 28 Jul, 2016
  • Partners at loggerheads over Birmingham PFI deal Partners at loggerheads over Birmingham PFI deal 25 Apr, 2019
  • Q&A: Symon Drake-Brockman on private debt investing Q&A: Symon Drake-Brockman on private debt investing 7 Sep, 2017

Leave a Reply Cancel reply

You must be logged in to post a comment.

  • Register to become a Room151 user

  • Latest tweets

    Room151 11 hours ago

    All three days of #LATIF & FDs' Summit are available on our webcast channel gotostage.com/channel/room151

    Room151 3 days ago

    FDs’ Summit experts defend councils as MPs label property investment ‘risky’: As Room151’s FDs’ Summit conference explores local government’s investment in commercial property MPs once again lable it a “significant risk to government”. Once again MPs… dlvr.it/Rr7lZx pic.twitter.com/jPvcZjDAS4

    Room151 4 days ago

    Global macro outlook: Virus versus vaccine: Sponsored article: Salman Ahmed argues monetary policy, a global vaccine rollout and fiscal stimulus are likely to put “upward pressure” on bond yields. Much like the latter half of 2020,[...] dlvr.it/Rr60nt pic.twitter.com/qsymBWmKmV

    Room151 4 days ago

    ‘Chasing yield’ not the best strategy as negative rates loom: Recent speculation that the UK may be heading toward negative interest rates prompts questions for treasury officers managing local authority funds at LATIF. Speculation is rife that the UK… dlvr.it/Rr3Mrj pic.twitter.com/wtxYAB20PO

    Room151 6 days ago

    Will new public procurement rules offer the best commercial results?: The government has issued a green paper on reforming procurement rules. Helen Randall and Rebecca Rees examine the proposals and argue they may not go far enough. The Cabinet… dlvr.it/Rqtw6T pic.twitter.com/9GiVTkL08U

    Room151 2 weeks ago

    The vaccine may help settle cash flows but inflation remains a risk: Sponsored article: Lauren Sewell examines the prospects for long-term borrowing as Brexit settles and vaccines are deployed against Covid-19. On the 9th October 2019 Whitehall sent… dlvr.it/RqZXCr pic.twitter.com/PzgOZOGQ0k

    Room151 2 weeks ago

    ESG in liquidity: Sponsored article: Gavin Haywood looks at the integration of ESG in Federated Hermes’ money market funds. Federated Hermes has over 300 public sector clients invested in our AAA rated money[...] dlvr.it/RqZX5f pic.twitter.com/E87sBXsay8

    Room151 2 weeks ago

    New realities of investing cash and liquidity: “What to do now?”: Sponsored article: Brian Buck looks at the “unique challenge” for cash management strategies. As investors assess the ongoing impact of the pandemic on their business, levels of cash and… dlvr.it/RqVbk9 pic.twitter.com/ZElVASmEUV

    Room151 2 weeks ago

    Extra finance promised by the government receives a broad welcome: Sponsored article: The financial pressures facing local authorities this year continue to pose challenges for council treasurers. While the launch of the UK’s Covid-19 vaccination… dlvr.it/RqTzTF pic.twitter.com/HCjH0pyHR5

    Room151 2 weeks ago

    A savvy approach to managing your cash: Sponsored article: Caroline Hedges examines the need for active cash management to achieve a higher than average return. Last year saw the already mountainous pile of negative-yielding debt around the[...] dlvr.it/RqTzMK pic.twitter.com/uP0RQYTJLt

    Room151 2 weeks ago

    Putting alternatives at the heart of multi-asset portfolios: Sponsored article: Nick Edwardson looks at the assets that provide the “most attractive opportunities”. We believe that asset allocation is the primary driver of investment returns and that the… dlvr.it/RqQ2Qt pic.twitter.com/WLBzvRRRUQ

    Room151 2 weeks ago

    Thriving in the pandemic: Avoiding the stragglers: Sponsored article: George Crowdy looks at the sectors providing opportunities for sustainable investment. Throughout much of 2020, we talked about why sustainable investing has thrived in the pandemic,… dlvr.it/RqQ2NQ pic.twitter.com/dxiPWKFsPl

    Room151 2 weeks ago

    The development of CCLA’s mental health benchmark: Sponsored article: Amy Browne examines the importance of investing in mental health in the workplace. We are living through a public health emergency in more ways than one. Physical health[...] dlvr.it/RqQ2Jx pic.twitter.com/o6yRSCX3oF

    Room151 2 weeks ago

    Brexit: What the EU trade deal means for the UK economy: Sponsored article: Hetal Mehta looks at the impact of Brexit on economic prospects. Four and a half years after voting to leave the EU, on Christmas Eve the UK finally[...] dlvr.it/RqLBDt pic.twitter.com/No62srfE8h

    Room151 2 weeks ago

    Cash dethroned: The quest for liquid yield: Sponsored article: Peter Hunt and George Carne ask how treasury departments can balance the need for yield and liquidity. The massive stimulus and waves of liquidity provided by central banks[...] dlvr.it/RqLBDj pic.twitter.com/05g6Zhu1kU

    Room151 2 weeks ago

    Richard Harbord: Delayed “capital determinations” make section 25 opinions a new crunch point: The severe pressure on local government budgets now means section 151 officers confront a tricky call on  whether they can make a judgement on the robustness… dlvr.it/RqLBDV pic.twitter.com/vTAbDKFzkI

    Room151 1 month ago

    PWLB Consultation: Analysis straight from Dickens: Helen Radall and Paul McDermott present a legal examination of the new PWLB borrowing rules as Charles Dickens might have imagined it. Free and easy PWLB (“Marley” to his friends)[...] dlvr.it/RnmwLq pic.twitter.com/yFxcPrQqEG

  • Categories

    • 151 News
    • Agent 151
    • Blogs
    • Chris Buss
    • Cllr John Clancy
    • Dan Bates
    • David Crum
    • David Green
    • Development
    • Forum
    • Funding
    • Graham Liddell
    • Ian O'Donnell
    • Interviews
    • Jackie Shute
    • James Bevan
    • Jobs
    • LGPSi
    • Mark Finnegan
    • Recent Posts
    • Resources
    • Richard Harbord
    • Stephen Fitzgerald
    • Stephen Sheen
    • Steve Bishop
    • Technical
    • Treasury
    • Uncategorized
  • Archives

    • 2021
    • 2020
    • 2019
    • 2018
    • 2017
    • 2016
    • 2015
    • 2014
    • 2013
    • 2012
    • 2011
  • Previous story Speakers revealed for 12th annual LATIF and FDs’ Summit
  • Next story The role of local authorities as a lender to boost the economy

© Copyright 2021 Room 151. Typegrid Theme by WPBandit.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we'll assume that you are happy to receive all cookies from this website.OK