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Agenda item

Call-in of the Executive Director of Resources' Decision on the Treasury Management Mid-Year Review, including an Amendment to the Council's Minimum Revenue Provision Policy



The Committee considered the following decision of the Executive Director of Resources taken on 12th January 2018, to:-




(a)      note the report on treasury activity in the first half of 2017/18, and our current expectations for the second half of the financial year; and




(b)      approve the proposed changes to the 2017/18 Minimum Revenue Provision Policy, in accordance with the recommendations made in the report. 








The lead signatory to the call-in was Councillor Robert Murphy, and the other signatories were Councillors Penny Baker, Douglas Johnson, Magid Magid and Alison Teal.




Reasons for the Call-in




The signatories confirmed that they wished to scrutinize the decision made that will have serious financial consequences for future budgets.








·             Councillor Olivia Blake (Cabinet Member for Finance)


·             Eugene Walker (Executive Director of Resources)


·             Stephen Bottomley (Finance Manager, Treasury Management and Banking)


·             Councillor Robert Murphy (Lead Signatory to the Call-in)


·             Councillor Douglas Johnson (Signatory to the Call-in)


·             Councillor Magid Magid (Signatory to the Call-in)


·             Councillor Alison Teal (Signatory to the Call-in)




Councillor Robert Murphy, as Lead Signatory, circulated and referred to a Government consultation document, issued by the Department for Communities and Local Government in November 2017, on proposed changes to the Prudential Framework of Capital Finance.  He believed the decision, which involved significant amounts of money, over a long period of time, warranted submission to the Cabinet and the Council.  He also considered that the effects of such changes could have a potentially adverse effect on the citizens of Sheffield in 40 years’ time, affecting people who had not had an opportunity to comment thereon.  Referring to paragraph 31 of the consultation document, which he stressed was not statutory guidance, Councillor Murphy believed that the Authority had overpaid its MRP, and should therefore now take steps to claim this overpayment back in order to reduce further payments in the future.  With reference to paragraph 35 of the document, which indicated that an overpayment could not be calculated retrospectively, he considered that, with effect from 2007, the Authority had been overpaid, and was now trying to claim this amount back, which appeared to contradict the Government guidance.  Councillor Murphy questioned whether the Authority considered that the proposed changes were in keeping with the Government’s financial Code of Conduct, whether this was a prudent move on behalf of the Authority, and whether the Authority would be looking at changing its methodology again in 2018/19. 




Councillor Douglas Johnson stated that implementing such changes made it look as though the Authority was taking steps to plug gaps in its Revenue Budget 2018/19, which could potentially result in larger debts in future years.




The Committee received a presentation from Eugene Walker on the background to the decision, the proposed changes, the impact of such changes and the governance arrangements regarding the changes. Mr Walker stated that the changes were not so much about how fast the Authority paid its debt off, but more to do with internal accounting procedures, and related to how the Authority could save money now, to put towards paying off its debt when it was due. 




Members of the Committee raised questions, and the following responses were provided:-




·             The proposed changes represented a prudent view in terms of how long the Authority considered that its assets would last, and represented an internal reserve to re-provide for the asset at the end of its life.




·             The reason for the Authority paying more off its debt in the first place was due to a Government requirement that debt should be paid off at a faster rate (4% of the asset value per year).  Under the new Government guidance, the Authority was being asked to make a decision in terms of the life of its assets, and to use that chosen period to work out how much to pay back.  A number of other local authorities had already adopted the new repayment approach, and it had now been decided that, as part of the budget planning process for 2018/19 and future years, that the changes should be implemented.  It had also been considered that the changes were necessary to provide the Authority with sufficient revenue funding in respect of its responsibilities in terms of Social Care.




·             It was not likely that there would be any confusion in terms of assessing the value of the Authority’s assets, as this would be done as part of the routine annual audit.  The proposed changes related to all the Authority’s assets, and not just those related to PFI projects. 




·             It had been decided that, on the basis that the changes could be implemented at this time as the Authority had saved prudently in the past, it was now able to lower this amount now.  The Authority had not extended the life of some of its assets up to 60 years like some other local authorities, and it was not envisaged that any further changes would be required in the next financial year. The money saved as a result of the lower interest payments would be used to fund the expected £6 million in terms of Social Care pressures in 2018/19 and for the following five years. In addition, the expected savings in respect of the Authority’s MRP charge in 2017/18 would be approximately £5 million.




·             Whilst it was accepted that the decision to make the change needed to fit with the Government guidance now referred to, it had been considered a prudent approach in terms of dealing with the Authority’s debt and was, in the opinion of the Executive Director, unlikely to be subject to challenge. 




·             In terms of any alternative options considered, it had been deemed that there were only two possible options, either agreeing or not agreeing to the proposed changes. 




·             The difference in the level of payments, following the proposed changes, would be charged to the Authority’s Revenue Budget.  The Authority’s total income comprised its Revenue Budget, Government Grants and Council Tax receipts.  It was expected that the rise in Council Tax for 2018/19 would equate to 3%/4%.




·             The Executive Director of Resources had sought advice from the Authority’s Monitoring Officer (Director of Legal and Governance), who had confirmed that it was a delegated decision he could make under the Council’s Treasury Management Policy.  He had also been advised by the external auditors (KPMG). Councillor Olivia Blake had been fully briefed on the proposals.  The proposed changes would also be highlighted in the Month 9 budget report to Cabinet.  The Authority had held off making the decision, despite several other local authorities having done so, both with the intention of being more prudent, and to ensure that the Authority was not at a financial disadvantage.  There were no concerns in terms of the charges for the 2019/20 financial year. 




·             If there was a further change in terms of Government guidance on this issue, this would affect all local authorities, and have a major impact over the whole Local Government sector.




·             The proposed changes would result in the creation of a cash reserve which, ultimately, would mean that the Authority would not have to borrow from external sources as much, making a further saving.  It was envisaged that the Authority would look to borrow from external sources in future if its cash reserves decreased, resulting in less cash being put aside.




·             The Authority, as part of its Capital Investment Programme in highways, had borrowed £135 million to part-fund the total cost of the works undertaken as part of the Streets Ahead project.  The Authority’s debt to Amey, under the project, would be paid off after a period of 25 years, with the remaining £135 million being paid back over a period of 40 years.




·             In terms of the Authority’s PFI costs, the effects of the proposed changes did not relate to the external payments or the contract itself. 




·             Any budgetary amendments as a result of the proposed changes would be highlighted in the budget papers, which would be submitted to the Budget Council meeting in March, for approval.




·             It was accepted, looking at the graph set out in the presentation, that the extra costs to the Authority’s Revenue Budget from 2037 to 2067 could potentially have an adverse effect on its ability to fund its Social Care requirements.  However, at the point at which the savings reduce in 2024, the Authority will have paid off its debt in respect of the Major Sporting Facilities, resulting in substantial compensating budget savings.




·             The peak shown on the graph in 2021 represents the MRP Revenue Impact of the Authority’s payment following the abolition of the former South Yorkshire County Council.  This debt amounted to approximately £4.5 million.




·             A similar graph to the one included in the presentation, showing the MRP Revenue Impact of solely the £135 million debt in respect of the Streets Ahead project, could be provided to Members.




Councillor Olivia Blake stated that she had been kept fully briefed on the proposed changes and, based on the information provided, was confident that it was a sensible and prudent decision for the Authority to make.  She stated that the changes would help in terms of increasing the Authority’s revenue savings which, in turn, would enable the Authority to fund its statutory requirements in terms of Social Care for 2018/19.  She also confirmed that the Authority’s external auditors, KPMG, had advised that it was a prudent step to take.  In terms of the decision-making process, Councillor Blake stated that she was comfortable that the decision had been made by the Executive Director of Resources as, not only on the basis that he had the relevant delegated powers to make such a decision, under the Council’s Treasury Management Policy, but it had also speeded up the process, which had allowed the Authority to have a level of clarity and certainty in terms of its future budget planning.  She also made the point that the changes would be detailed in future budget reports submitted to the Cabinet, and to the Budget Council meeting in March.




RESOLVED: That the Committee:-




(a)      notes the contents of the report now submitted, together with the comments now made and the responses to the questions raised; and




(b)      agrees to take no action in relation to the called-in decision, but recommends that the Council’s Audit and Standards Committee  discuss the changes with the Council’s external auditors, as part of that Committee’s work programme, to ensure that due process has been followed in this case.




(NOTE: In accordance with Council Procedure Rule 26 of the Council’s Constitution and the provisions of Section 100(b)(4)(b) of the Local Government (Access to Information) Act 1985, the Chair decided that the above item be considered as a matter of urgency in order for the call-in to be considered at the earliest possible opportunity, although it had not been possible to give five clear days’ notice that the item was to be considered.)