THURROCK Council is having to rethink its plan to use capital receipts to repay debt after officials at the Ministry of Housing, Communities & Local Government made clear this would be unacceptable reports Local Government Chronicle.
The council is facing an overspend of £6.3m this year and a budget shortfall of £19.3m next year. Pressures from Covid prompted the council to freeze recruitment to all non essential posts and halt planned new investments in June this year. The subsequent loss of new investment income, which the council had initially factored into its four year plans back in February has now added £12m the council’s budget gap for the next four years, taking it to £33.7m.
At the start of 2020-21, the council, which has a core spending power of £123m, had general fund reserves of £11m and £32m in earmarked reserves.
Part of Thurrock’s plan to overcome its predicted budget shortfall had been to use capital receipts to repay its minimum revenue provision (MRP), which is the amount that must be set aside in a council’s revenue account for capital costs including the repayment of debt or depreciation of assets.
But last week, Mr Clark and his chief accountant were denied permission to do so by officials at the Ministry of Housing, Communities & Local Government during a discussion over Thurrock’s revenue pressures. “When they heard that is what we were planning on doing they told us it was no longer acceptable,” said Mr Clark. “We are still arguing that [point] if I’m honest. It is something which can help us out next year and doesn’t cost the government any money.”
LGC understands that Thurrock is not the only council to be lobbying the government to allow flexibility over their use of MRP. However, using capital to repay a revenue cost is considered bad practice and last year Peterborough City Council was investigated by MHCLG for using capital receipts in such a way. Although the ministry decided not to take action against Peterborough it said the practice was “not allowed”.
Thurrock is also lobbying MHCLG on providing further support to councils through measures including capitalisation directives that allow borrowing to fund day to day spending. Other authorities to have already applied for a capitalisation directive include Luton BC and Bexley LBC and more are believed to be in discussions with the ministry.
In their draft report on Thurrock’s 2019-20 accounts, auditors BDO found “no expectation for a significant worsening” of Thurrock’s financial position “in the short term” and said they expected to give the accounts a clean bill of health. But they also highlighted “significant budget gaps” in the medium term”, with a £33.7m shortfall predicted over the next four years.
